The exit scheme explained

The Basic Payment Scheme (BPS) lump sum exit scheme is open for applications. The scheme has been several years in the making and the announcement follows last year’s Defra consultation on the proposed scheme design, to which the CLA responded.

The scheme presents a limited-time opportunity to receive a lump sum payment based on remaining BPS claims in return for leaving farming. The BPS is being phased out between 2021 and 2027. The exit scheme will only be open to applications in 2022. The key condition is that the recipient of the payment has to surrender all of their BPS entitlements and cease farming the associated land. The bullet points below summarise the main details of the scheme:

• Applications opened on 12 April 2022 and close on 30 September 2022.
• Lump sum payments will be made from November 2022 for those that have already exited by then. Otherwise, applicants will have until 31 May 2024 to submit and finalise their claim.
• Payments will be based on a multiplier of 2.35 applied to a reference amount, and the total payment will be capped at £99,875.
• For tax purposes, payments will be treated as capital (not income).
• The reference amount will be calculated from an average of payments claimed in 2019, 2020 and 2021. Any average BPS payment over £42,500 will be higher than the payment cap.
• Owner-occupiers must surrender all their BPS entitlements and either gift, sell or rent out their farmland for at least 5 years.
• Tenants must surrender or assign their tenancy.
• For those in farming partnerships and limited companies, partners with a 50% or more interest in the business can claim the payment, and the remaining members of the business can continue to farm the land and claim under other schemes (provided all entitlements are surrendered).
• Recipients will be able to retain up to 5ha of their agricultural land.
• Recipients will have to repay the lump sum if they enter into the Sustainable Farming Incentive and the agriculture-related options in Countryside Stewardship and Local Nature Recovery.
• More details on the scheme are available here.

Since launching an expression of interest process in February this year, the Rural Payments Agency have had contact from over 1,900 businesses. Defra has pointed out the cap of £99,875 will mean that around 80% of those that claim BPS each year will be eligible to apply. Some of these recipients will be claiming on smaller areas of land- say 10-30 hectares and may not be farming full time. The scheme may prove tempting for people in this position. The scheme will not be appropriate for those who plan to continue farming for the foreseeable future. For others who might be considering leaving at some point, they may choose to accept their dwindling annual BPS payments and make a decision after 2027, when the future scheme landscape is more settled. However, for those that are seriously considering exiting the industry, the scheme does offer an incentive to act this year.

A Defra announcement in February included confirmation that BPS payments will be delinked from 2024. This means that from 2024, BPS claimants will no longer be required to farm in order to receive their remaining annual payments, and there will be no further annual applications. A 3 year reference period of 2020, 2021 and 2022 will be used to calculate the remaining delinked payments from 2024. The exit scheme is inevitably gathering a lot of attention but the reality is that it will only interest a small proportion of the circa 85,000 annual BPS recipients, and it is the proposal to de-link payments that will impact all BPS recipients from 2024 onwards.