Farm Finance: what it costs to buy or lease entitlements

Some 18,000 transfers of Basic Payment Scheme (BPS) entitlements were carried out in 2018 to the value of almost €52m.

The ability to transfer entitlements is important for farmers, as it allows for changes in farm size and generation renewal. Farmers interested in transferring entitlements are being urged to start making arrangements now, as the deadline is 15 May to be eligible for BPS payments.

The Irish Farmers Journal contacted a number of auctioneers specialising in the sale and lease of entitlements to gauge the 2019 market. Prices have not varied significantly since last year.

Meath-based auctioneer John McGee said demand for both buying and leasing entitlements is strong this year, but the number of entitlements available for sale is low.

Sales are low in many cases due to the 20% clawback rule and tax implications of selling entitlements. Most entitlements are being leased on a one-year basis, as farmers are unsure of the status of these entitlements post-2019.

Costs

Table 1 shows how to calculate the approximate costs of buying or leasing entitlements (including greening).

To calculate the typical market cost of the entitlements for purchase, multiply the value of the entitlements in the table by the corresponding multiple.

To calculate the lease cost of an entitlement, multiply the entitlement value in the table by the corresponding percentage. Examples are shown in the table.

Auctioneers say the costs of leasing and selling can vary in the weeks ahead as they are based on supply and demand. Auctioneers charge from 3% to 5% on the value of the entitlements for their services, which is not included in the table.

Galway-based auctioneer Joseph Naughton says farmers who are buying or leasing entitlements should make sure they have enough land to match their acquisition.

“You need one eligible hectare per entitlement, so remember to leave out roadways or farmyards that are not included in the scheme in your calculations,” he highlighted.

Joseph also said farmers planning on selling or leasing entitlements should look up the net unit value of their 2019 entitlements on Agfood.ie and not confuse this value with the value including greening.

“To work out what these entitlements are worth including greening, multiply the net unit value by 1.44,” Joseph explained. It is the value including greening that is used for trading purposes between farmers.

Clawbacks and tax

Where entitlements are sold without land, they will be subject to a clawback of 20% of the number of entitlements sold. For example, if 10 entitlements to the value of €200 each are sold, the buyer would receive eight entitlements at €200 each, with the remaining two entitlements being clawed back by the Department.

Regarding taxation, head of tax at ifac accountants Declan McEvoy says farmers selling entitlements to the value of over €37,500 within a 12-month period are liable to pay VAT at 23% whether they are VAT registered or not.

“All sales of entitlements are subject to capital gains tax at a rate of either 33% or 10%. Farmers who were actively using the entitlements up to the point of sale are liable for the lower rate,” Declan explained. He said there is no tax or stamp duty on the acquisition of entitlements.

Online system

Since 2018, all BPS applications and transfer of entitlements had to be carried out online. Paper-based applications are no longer accepted.

Farmers registered on agfood.ie can carry out an entitlement transfer themselves or they can get an agricultural consultant to do it on their behalf.

The farmer selling or leasing the entitlements should be aware that for a successful transfer, the person buying or leasing in the entitlements needs to accept the application for the transfer to go through.

Both parties should then receive an acknowledgement receipt in their online correspondence and also a text from the Department.

Some auctioneers outlined their frustration with the Department’s system for transferring entitlements online.

Auctioneer Liam Mullins, based in Mallow, Co Cork, explained that last year it was very difficult to do a transfer because key information was withheld on the system.

He said the system was improved since with the addition of the client’s contact details, but important entitlement information is still missing.

“This increases the chances of human error,” he argued.

Usage rule

If a farmer holds entitlements that have not been used (activated) for a period of two consecutive years, they will revert back to the national reserve.

Farmers must activate 100% of entitlements in at least one of two consecutive years. Leasing entitlements still counts as activation, but lessors must ensure the lessee has sufficient land to activate all the entitlements, otherwise they could be lost.