Taxation of BPS Lump Sum Exit Scheme payments have been clarified by HMRC in new draft legislation.
The LSES provides a lump sum payment for eligible farmers seeking to retire, replacing the payments that would otherwise have been due to them under the BPS, through to 2027.
Sole traders, partnerships, and companies may all qualify for payments under the LSES.
Last year’s consultation on the scheme had raised numerous questions, such as the tax treatment of payments received under it.
That has now been clarified by HMRC, in policy paper and draft legislation published on 20 July.
It states that such payments will be treated as capital receipts and chargeable to Capital Gains Tax, rather than income tax, and for companies as chargeable gains subject to Corporation Tax. The measure is effective from 6 April 2022.
Martyn Dobinson, partner at accountancy firm Saffery Champness, said this clarification was welcome news.
"This means that payments under the LSES will not be charged as receipts of a trade, but rather as proceeds from the disposal of a chargeable asset, or for a company, from an intangible asset.
"This is similar to the treatment of BPS entitlement disposals," he explained.
“This helpfully clears the air over this issue and provides clarity for our clients who are looking to take advantage of the scheme.”
In cases where the eligibility criteria are not met, then LSES payments will, however, continue to be taxed as receipts of a trade or miscellaneous income.
