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https://defrafarming.blog.gov.uk/2022/02/08/an-update-on-the-lump-sum-exit-scheme-and-delinked-payments/

An update on the Lump Sum Exit Scheme and delinked payments 

Posted by: , Posted on: - Categories: Farmers, Things we're doing, Things we've learned, Ways to get involved
Cutting rank growth of soft rush to encourage fresh growth for some control by cattle grazing
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It can be difficult for farmers who wish to retire or leave the industry to do so. A lack of capital can prevent them.  

We think that our Lump Sum Exit Scheme could help them. Last year, we ran a consultation with farmers and other experts, and the findings supported this view. In this post, I'll share a summary and our response. I'll also cover delinked payments and an opportunity for you to shape our work.

Supporting those who wish to leave farming

We plan to offer farmers in England who wish to exit the industry the option of applying in 2022 for a lump sum payment.  

We expect farmers will be able to apply from April 2022 until the end of September 2022. 

The payment will be made once the farmer has met the scheme rules, including transferring out their agricultural land (with some exceptions). 

Today we published guidance on lump sum payments for farmers who leave or retire from farming, and delinked payments.

The guidance includes details of how these payments will be taxed. Once the full scheme rules are finalised, we'll publish an update on the blog. 

We expect payments to begin to be made for some farmers from November 2022, but farmers will have a longer period if they need it to arrange their exit. 

Once the farmer has received the lump sum, they won’t be able to claim further Basic Payment Scheme (BPS) payments or delinked payments in England. 

We're designing the Lump Sum Exit Scheme to enable those who wish to retire or leave the industry to do so in a planned way. By freeing up land, the scheme will also open up opportunities for new entrants and farmers wishing to expand their businesses. 

The Rural Payments Agency will send information to BPS applicants this month to explain how they can request a forecast statement showing the lump sum amount they could receive. 

Delinked payments 

We intend to replace the Basic Payment Scheme with delinked payments in 2024. 

When payments are delinked, recipients won’t have to farm the land to receive the payments. Delinked payments will be phased out by the end of 2027. Delinking will make things simpler for farmers and the Rural Payments Agency (RPA). 

It will free up farmers to focus on running their business and delivering the public goods that can be rewarded under our new schemes, including the environmental land management schemes. 

A farmer may get delinked payments even if they choose to stop farming altogether. 

Those who continue farming will still have to comply with regulations that protect the environment, plant health, and animal welfare. The requirement to comply with these will not be related to the delinked payments they receive. 

In the run up to delinking, we will keep working with farmers to ensure they continue to understand and meet regulations. 

Consultation summary

As I mentioned earlier, last year, we ran a consultation on a Lump Sum Exit Scheme for farmers and our proposed approach to delinked payments. We received 654 responses.

After going through the responses, we decided: 

  • farmers must have claimed BPS in 2018 or earlier scheme years to be eligible (with some exceptions) 
  • farmers will have to surrender their English BPS entitlements before they can receive the lump sum payment. Once they have received the lump sum, they won’t be able to claim further BPS or delinked payments in England
  • farmers will have to transfer out their agricultural land in England (and rights of common) by 31 May 2024 – apart from up to 5 hectares or land planted with trees under some woodland creation schemes
  • farmers will be able to keep their farmhouse, other buildings and non-agricultural land
  • there will be more flexible rules for partnerships and limited companies than we had proposed in the consultation
  • the lump sum will be based on the average BPS payments made to the farmer for the 2019 to 2021 scheme years - this is the farmer’s ‘reference amount’. 
  • this reference amount will be capped at £42,500 and multiplied by 2.35 to calculate the lump sum. That means the maximum lump sum which a farmer can be paid is £99,875
  • delinked payments will be calculated based on the average BPS payments made to the farmer for the 2020 to 2022 scheme years. Progressive reductions will be applied to these payments as they are phased out by the end of 2027. 

Improving our guidance 

We'd like some volunteers to help us test scheme guidance and communications. If you’re interested, please leave your details in a comment so we can contact you. Your details will not be published publicly.

If you have any questions, do leave comment below. For updates, please subscribe to the Future Farming blog. 

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20 comments

  1. Comment by Tessa posted on

    Will the lump sum exit scheme be available to tenant farmers?

    Reply
    • Replies to Tessa>

      Comment by Alastair Walton posted on

      Hi Tessa,

      Yes, it is. Tenant farmers will need to surrender their tenancy for their agricultural land in England (with some exceptions). They would also need to surrender BPS entitlements to RPA. Our guidance has more details.

      Best wishes,
      Alastair

      Reply
  2. Comment by Leslie Pritchard posted on

    Does this apply to Wales as well?

    Reply
  3. Comment by James posted on

    Will there be a hardship scheme or fund for those that have significantly increased the size of their holding during the final reference year (2020 - 23ha, 2021 - 29ha, 2022 - 232ha?

    Reply
    • Replies to James>

      Comment by Alastair Walton posted on

      Hi James,

      We have no plans to offer a hardship fund who those whose holdings have increased in size over the reference period. We decided to use an average of years for the reference period to help even out any anomalies. This took account of responses to our consultation.

      Best wishes,
      Alastair

      Reply
  4. Comment by Stephe posted on

    Hi i am on a farm business tenancy we giving farm up in next few months. Can land stop us taking lump sum instread of selling intightment s to him

    Reply
    • Replies to Stephe>

      Comment by Alastair Walton posted on

      Hi,

      To get a lump sum payment, you have until 31 May 2024 to surrender to RPA, all English BPS entitlements you own which are not leased-out.

      Whether you have to sell your entitlements you own to your landlord will depend on what contractual arrangements you have in place with your landlord.

      You do not have to surrender to RPA any entitlements that you have leased-in, but your lump sum may be reduced if they are not surrendered.

      If you have leased in entitlements from your landlord which need to be returned to the landlord at the end of the tenancy, then you may wish to negotiate with them.

      Best wishes,
      Alastair

      Reply
  5. Comment by Martin posted on

    Shall we be able to apply for this via the normal BPS log-in?

    Reply
    • Replies to Martin>

      Comment by Alastair Walton posted on

      Hello,

      You will be able apply for the Lump Sum Exit Scheme through the Rural Payments portal. We’ll provide further guidance before the scheme opens for applications.

      Best wishes,
      Alastair

      Reply
  6. Comment by Matthew Wallace posted on

    I have concerns with the delinking proposal. As I understand it, the delinked payments are going to be based on a three year average (2020,2021 and 2022) with no adjustment for taking on new land or business expansion. My concern is that new entrants are going to be disproportionally disadvantaged as a result.

    An example being a new entrant who has started farming in 2022, and will be submitting their first BPS application this May. The current averaging proposal will see their reference figure only being 33% of what it would have been if they had started farming in 2020. This means the claimant will see a substantial drop in payment from 2023 and 2024, along with the remaining delinked payments being significantly lower.

    I understand the need for averaging, however without any allowances for new entrants or business expansion, the current proposal unfairly penalises this section of BPS claimants. It is particularly frustrating when DEFRA/RPA should be supporting new entrants and those looking to expand their businesses.

    Is there any thoughts or discussions ongoing as to how to address this issue?

    Many thanks

    Matt Wallace

    Reply
    • Replies to Matthew Wallace>

      Comment by Alastair Walton posted on

      Hi Matt,

      We will set the reference period for delinked payments as the average of the BPS 2020 to 2022 scheme years. We consider that using an average over a number of years is fairer than using a single year, as any anomalies will be evened out. This takes account of responses to our consultation. We recently produced some guidance on delinked payments and will be providing further information about how the payments will work in situations where there have been business changes since the start of the reference period.

      We agree that support for new entrants is important. As set out in our Agricultural Transition Plan 2021 – 2024 we will provide funding to create lasting opportunities for new entrants to access land, infrastructure and support to establish successful and innovative businesses. Over the last year we have been codesigning the new entrant scheme with a steering group as well as a wider user and stakeholder group including new and recent entrants, landowners and county farms and those already providing support to new entrants.

      In January 2022 the Secretary of State announced the development of incubator pilots for new entrants to learn more about what works in terms of meeting their needs. We aim to announce more detail in early spring this year.

      Best wishes,
      Alastair

      Reply
      • Replies to Alastair Walton>

        Comment by Matthew Wallace posted on

        Hi Alistair,

        Yes I would agree the averaging approach is a fair starting point. My concern is that it severely disadvantages any new entrant who started farming in 2021 or 2022. The averaging approach needs some flexibility and allowances for those starting new businesses in 2021 or 2022.

        Do you have a timeframe as to when additional guidance is going to be published on this?

        I have a number of clients who are going to be affected by this so would welcome to the opportunity to discuss it further with you if possible.

        Many thanks

        Matt Wallace

        Reply
  7. Comment by Robert Vicary posted on

    The average of the 3 years 2020 to 2022 is greater in amount than the payment made for 2024. Is this correct?

    Reply
    • Replies to Robert Vicary>

      Comment by Alastair Walton posted on

      Hi Robert,

      When we make delinked payments in 2024, we will apply progressive reductions to the reference amount (which will be based on the average BPS payments made to the farmer for the 2020 to 2022 scheme years). We have announced the reductions we plan to apply in 2024 here: https://calculate-direct-payment-reductions.defra.gov.uk/. This means the 2024 delinked payments will be less than the reference amount.

      Best,
      Alastair

      Reply
  8. Comment by Ruth posted on

    Hello, if a farmer takes up this scheme and leases all the farmland to their son on a five year lease, less 5 hectares, the farm buildings and farmhouse, how does this impact in the event of death duties within the lease period, or alternatively after completion of the five year lease period, regards, Ruth.

    Reply
    • Replies to Ruth>

      Comment by Alastair Walton posted on

      Hi Ruth,

      Assuming in this situation that the farm is inherited by the son after the farmer (a sole trader) has passed, then this would count as an exit still occurring and they would have qualified for the lump sum. You should consult a tax advisor/accountant for advice on inheritance tax.

      Best,
      Alastair

      Reply
  9. Comment by l Charman posted on

    Alistair,

    I have a complicated scenario that I would like to talk through with someone, please could I get a direct contact email or telephone number to discuss please

    Reply

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