Given ongoing uncertainty among both farmers and landowners over conacre land in 2014 and beyond, a statement has been released by Agriculture Minister Michelle O’Neill which attempts to clarify some of the issues around the definition of an ‘‘active farmer’’.
In the statement, the Minister makes the Department’s position clear – new entitlements in 2015 should only be established by the person actively farming the land.
However, the statement comes with two caveats. The first is that the definition of an active farmer within European legislation has not been finalised, and will probably not be confirmed until the end of March.
The other is that the Department has not yet decided whether to allow claimants to establish new entitlements in 2015 or rollover existing entitlements. In their consultation document, DARD favoured abolishing all entitlements in 2014 and starting again in 2015. It would be a surprise if this was not the final outcome.
At present, it looks as though landowners have four key issues to consider:
They could enter into an agreement with a farmer who takes their land in conacre from 2015, allowing the tenant to establish entitlements on the land. To protect both parties, ideally it would be a five-year agreement that covers the period through to the next reform in 2019. A greater degree of security of tenure for farmers is potentially the most positive aspect of the current reform process.They could sell existing entitlements now to the person who takes their land and opt out of Single Farm Payment this year. A deal must be completed by 2 April. The value of these entitlements would then be included in the 2014 payment to the farmer that becomes the baseline for new entitlements in 2015. Under current DARD proposals, NI will move halfway to a flat-rate payment of €325/ha by 2019. If this is the case, a basic entitlement of €78/ha is worth approximately £46 per acre to a farmer over the six years from 2014 to 2019 (£24 per acre in 2014 moving to £68 per acre by 2019). A €200/ha entitlement is worth approximately £77 per acre over the same period (£69 per acre in 2014 moving to £90 per acre by 2019).They could sell their entitlements through a broker. Generally, entitlements are selling at roughly twice their face value. While there is potentially a significant return to be had for an investor buying entitlements, they must have ‘‘clean’’ land so that they can claim the entitlement in 2014.They could go ahead and establish entitlements in 2015. The key here is that the landowner must be farming the land in 2015. It will not be difficult for DARD to target checks at claimants who have established entitlements in 2015 but have no recent history of actively farming (eg livestock on APHIS). Where an inspection in 2015 found that the land was being farmed by someone else, both the landowner and the person farming the land could be in line for significant penalties.One of the main reasons often cited why landowners might want to stay in the subsidy system is concern around inheritance tax. However, in her statement Minister O’Neill said: “I am not aware of any case to date where a decision on inheritance tax liability has depended on who claimed Single Farm Payment.”
She also referred to a letter to her predecessor, Michelle Gildernew, from the British treasury sent in 2009 which effectively stated that there was no issue when the land was being actively farmed (even by a conacre tenant).
Further clarification on an active farmer is expected from DARD later in 2014. Meanwhile, answers to a series of relevant questions are available on the DARD website and will be added to over time.
When trying to calculate the future value of entitlements there are a number of issues yet to be clarified, including just how quick NI will move to a flat-rate payment and what the end point actually is in 2019. These issues are unlikely to be resolved before the end of March.
The assumptions behind the calculations in Table 1 are based on DARD proposals – ie NI moves halfway in five equal steps to a flat-rate payment in 2019 and a single region model applies (ie halfway to €325/ha).
The example in Table 1 uses a 60ha farm, although the principles are directly applicable to all farm sizes. The major losers are those with high-value entitlements.
A farm with €1,000/ha entitlements would see its payment reduced by nearly 34% by 2019. However, a farm with low-value entitlements worth €200/ha would gain over 30% by 2019.
A question often asked by those with high-value entitlements is should they try to dilute the value of these entitlements over a greater land area in 2015. For example, if the €1,000/ha entitlements were spread over 80ha rather than 60ha, the starting point for the calculations would be €750. By 2019, these entitlements would be worth €537.50.
In this scenario, bringing in an extra 20ha is worth an additional €97.50/ha on average over the five years to 2019 (approximately £33 per acre – £11 per acre in 2015 rising to £56 per acre in 2019). It is the same, irrespective of the initial entitlement value. If the additional 20ha came with the basic area payment (€78/ha), the entitlements have a slightly higher value. Over the five years, they would be worth approximately €134/ha each year (around £51 per acre - £33 per acre in 2015 rising to £68 per acre in 2019).
There is still the option for DARD to move to full flat-rate payments by 2019. In this scenario, the value of bringing in additional land over the period effectively doubles, as does the reduction in higher value entitlements to 2019.
Given ongoing uncertainty among both farmers and landowners over conacre land in 2014 and beyond, a statement has been released by Agriculture Minister Michelle O’Neill which attempts to clarify some of the issues around the definition of an ‘‘active farmer’’.
In the statement, the Minister makes the Department’s position clear – new entitlements in 2015 should only be established by the person actively farming the land.
However, the statement comes with two caveats. The first is that the definition of an active farmer within European legislation has not been finalised, and will probably not be confirmed until the end of March.
The other is that the Department has not yet decided whether to allow claimants to establish new entitlements in 2015 or rollover existing entitlements. In their consultation document, DARD favoured abolishing all entitlements in 2014 and starting again in 2015. It would be a surprise if this was not the final outcome.
At present, it looks as though landowners have four key issues to consider:
They could enter into an agreement with a farmer who takes their land in conacre from 2015, allowing the tenant to establish entitlements on the land. To protect both parties, ideally it would be a five-year agreement that covers the period through to the next reform in 2019. A greater degree of security of tenure for farmers is potentially the most positive aspect of the current reform process.They could sell existing entitlements now to the person who takes their land and opt out of Single Farm Payment this year. A deal must be completed by 2 April. The value of these entitlements would then be included in the 2014 payment to the farmer that becomes the baseline for new entitlements in 2015. Under current DARD proposals, NI will move halfway to a flat-rate payment of €325/ha by 2019. If this is the case, a basic entitlement of €78/ha is worth approximately £46 per acre to a farmer over the six years from 2014 to 2019 (£24 per acre in 2014 moving to £68 per acre by 2019). A €200/ha entitlement is worth approximately £77 per acre over the same period (£69 per acre in 2014 moving to £90 per acre by 2019).They could sell their entitlements through a broker. Generally, entitlements are selling at roughly twice their face value. While there is potentially a significant return to be had for an investor buying entitlements, they must have ‘‘clean’’ land so that they can claim the entitlement in 2014.They could go ahead and establish entitlements in 2015. The key here is that the landowner must be farming the land in 2015. It will not be difficult for DARD to target checks at claimants who have established entitlements in 2015 but have no recent history of actively farming (eg livestock on APHIS). Where an inspection in 2015 found that the land was being farmed by someone else, both the landowner and the person farming the land could be in line for significant penalties.One of the main reasons often cited why landowners might want to stay in the subsidy system is concern around inheritance tax. However, in her statement Minister O’Neill said: “I am not aware of any case to date where a decision on inheritance tax liability has depended on who claimed Single Farm Payment.”
She also referred to a letter to her predecessor, Michelle Gildernew, from the British treasury sent in 2009 which effectively stated that there was no issue when the land was being actively farmed (even by a conacre tenant).
Further clarification on an active farmer is expected from DARD later in 2014. Meanwhile, answers to a series of relevant questions are available on the DARD website and will be added to over time.
When trying to calculate the future value of entitlements there are a number of issues yet to be clarified, including just how quick NI will move to a flat-rate payment and what the end point actually is in 2019. These issues are unlikely to be resolved before the end of March.
The assumptions behind the calculations in Table 1 are based on DARD proposals – ie NI moves halfway in five equal steps to a flat-rate payment in 2019 and a single region model applies (ie halfway to €325/ha).
The example in Table 1 uses a 60ha farm, although the principles are directly applicable to all farm sizes. The major losers are those with high-value entitlements.
A farm with €1,000/ha entitlements would see its payment reduced by nearly 34% by 2019. However, a farm with low-value entitlements worth €200/ha would gain over 30% by 2019.
A question often asked by those with high-value entitlements is should they try to dilute the value of these entitlements over a greater land area in 2015. For example, if the €1,000/ha entitlements were spread over 80ha rather than 60ha, the starting point for the calculations would be €750. By 2019, these entitlements would be worth €537.50.
In this scenario, bringing in an extra 20ha is worth an additional €97.50/ha on average over the five years to 2019 (approximately £33 per acre – £11 per acre in 2015 rising to £56 per acre in 2019). It is the same, irrespective of the initial entitlement value. If the additional 20ha came with the basic area payment (€78/ha), the entitlements have a slightly higher value. Over the five years, they would be worth approximately €134/ha each year (around £51 per acre - £33 per acre in 2015 rising to £68 per acre in 2019).
There is still the option for DARD to move to full flat-rate payments by 2019. In this scenario, the value of bringing in additional land over the period effectively doubles, as does the reduction in higher value entitlements to 2019.
This is a subscriber-only article
SHARING OPTIONS: