Tenant farmers need to fully understand the details and tax implications of the lump sum exit payment scheme before making decisions about retirement, says Carter Jonas.
Details published this week should be welcomed, however the scheme may not go far enough for some farmers.
This is according to James Bradley, a partner at property consultancy Carter Jonas, who said careful consideration should be given before opting for the scheme.
The aim of it is to allow those wishing to retire or leave the industry early, to do so in a planned and orderly way and help create wider opportunities for the next generation.
The lump sum payment will be based on a payment worth 2.35 times the amount of the average of the previous three years Basic Payment (BPS) claims, from 2019-21, but will be capped at £100,000.
Mr Bradley said many farmers had been waiting to see the details of the scheme, so the development should be viewed overall as “a positive and helpful step”.
“The issues that businesses face with succession planning and/or retirement, coupled with barriers to entry experienced by younger farmers, are well known.
"So it’s worth looking at any initiative that can smooth a path out of, or in to, the industry."
But careful consideration should be given to the offer being made by government and how this might benefit an individual retiree’s plans, Mr Bradley warned.
"For example, full residential value is rarely reflected in the rent paid for Agricultural Holdings Act tenancies, and the outgoing farmer will find residential rents to be both higher and reviewed more often."
Operation of farm businesses could also offer other allowances and benefits that should not be forgotten when making an evaluation, he explained.
"A lack of retirement provision and availability of housing is a major problem for many tenant farmers."
He added that the lump sum exit scheme was not a grant, and would therefore be subject to Capital Gains Tax.
"With no base cost of entitlements the whole amount will be subject to tax. Individuals should consult with their financial adviser and check personal allowances that may be used to offset gains."
But he said that the scheme's principle should be supported, and for those who were already planning retirement the offer could be an added incentive to act.
Mr Bradley concluded: "However, it would seem unlikely that the details we have seen this week will be the catalyst for a large number of retirements, which is the significant shift that ministers are hoping to create.”
