Payments made to farmers in England who opt out of the sector and avail of a new lump sum exit scheme will be chargeable to capital gains tax (CGT) as opposed to income tax, HMRC has confirmed.
Farmers have until 30 September 2022 to apply to the exit scheme, and to be eligible must transfer out all but 5ha of their land, or plant it in woodland, by 31 May 2024.
All basic payment scheme (BPS) entitlements owned by the farmer must also be surrendered by this date.
In return, the farmer will receive a lump sum based on the average BPS received between 2019 and 2021, multiplied by 2.35, to a maximum payment cap of £99,875.
Any BPS received in 2022 or 2023 will be deducted from the total.
With BPS being gradually phased out in England, with a final payment in 2027, for those farmers not affected by this cap, the lump sum is effectively an up-front payment of what they would expect to receive over the period to 2027.
The aim of the scheme is to help those who want to leave the industry, and create opportunities for new entrants or farmers who wish to expand.
There had been concerns the lump sum might have been treated as income in a single year and be subject to much higher tax rates than the 10% or 20% under CGT.