As part of ‘L-day 2022’, HMRC have published a policy paper and draft legislation to clarify the tax treatment of payments received under the Lump Sum Exit Scheme for farmers. 

Following Consultation and Responses, the Farmers' Lump Sum Exit Scheme (LSES) opened for applications in April 2022.

  • The scheme is for Basic Payment Scheme (BPS) applicants in England who wish to leave farming, either to retire or take up a different occupation.
  • Under the LSES, a lump sum payment is made and the recipient will no longer be eligible for BPS payments or delinked payments (from 2024) in England.

HMRC have now published a policy paper and draft legislation, to be included in Finance Bill 2022-23, which clarifies the tax treatment of payments received under the LSES.

It confirms that from 6 April 2022:

  • Payments received under the LSES are not revenue receipts, providing they relate to a claim where the eligibility conditions in regulation 5 of the Agriculture (Lump Sum Payment) (England) Regulations 2022 (S.I. 2022/390) are met at the time when payment is made.
    • They are neither receipts of a trade nor miscellaneous income.
  • The payments will be treated as the proceeds from the disposal of a chargeable asset (i.e. a capital receipt).
    • In the case of a company receiving LSES payments, the payments will be treated as the proceeds from the disposal of an intangible asset. 
  • The payments being treated as capital receipts will enable eligible farmers to benefit from capital gains reliefs currently available when disposing of BPS entitlements.
  • If the LSES eligibility criteria are not met when the payment is made, it will be treated as a revenue receipt of a trade or as miscellaneous income.
  • Where an interim BPS payment is made between making an LSES application and the scheme end date, this is treated as a capital receipt providing the LSES eligibility conditions are met at some time during that period.

Useful guides on this topic

Farming: Overview
What is farming? What are the tax consequences and tax considerations of farming? What are the features of agricultural tenancies?

CGT: Reliefs, disposal of a business or its assets
Which Capital Gains Tax (CGT) reliefs apply when a person replaces or disposes of an asset used by a business, the whole or part of a business, or shares in a company?

IHT Agricultural Property Relief
What is Agricultural Property Relief (APR)? When does it apply? What are the conditions and restrictions of the relief?

Flat rate scheme: Farmers
What is the agricultural flat rate scheme? Who can use it? What are the conditions? What is the benefit? What about non-farming income? 

External link

HMRC policy paper and draft legislation

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