Entitlements dilemma for 6,417

Leased entitlements attached to 6,417 herd owners will be lost to both lessor and lessee unless they are transferred permanently by sale or gift before May 15, 2014.

Where lessors have leased out all of their entitlements for a period which includes the 2013 single payment year (or leased out a portion of their entitlements, but did not draw down a direct payment in 2013), they will not have an automatic ‘allocation right’ to the Basic Payment Scheme in 2015. These 100% lessors will not be eligible to establish entitlements in their own right. Nor can they use a Private Contract Clause (PCC) to transfer entitlements to the lessee.

The Department of Agriculture is writing to all persons affected, to advise them.

According to Agriculture Minister Simon Coveney, of the 6,417 herd owners, 43% involve leases of three or more years. Of those who entered leases in 2012, 2013 and 2014, 56% were in leases of three years or more. The figures indicate that very high percentages of them entered contracts which effectively excluded them from active farming for extensive periods. They had, in effect, withdrawn from active farming. A fundamental principle of the new Basic Payment Scheme (BPS) is that payments only issue to active farmers.

About 1,968 of the 6,417 herd owners are in leases between family members where, it is presumed, a transfer can be easily arranged. There are 335 cases which involve leases to a company where, in most cases, the lessor is also the director of the company.

In the D•il, Mr Coveney said, “The greater majority of cases relate to entitlements held by persons who are no longer active farmers, or to family members or companies where transfers can be arranged without difficulty. All lessors have the option to sell their entitlements in 2014, at prices dictated by the market. The issue of compensation for such persons does not arise.” He was replying to a question from Martin Ferris, TD, who asked about compensating far mers who had leased their lands in 2013, but now find they are obliged to sell the entitlements.

Also in the D •il, Mr Coveney said that farmers who joined the Early Retirement Scheme undertook to cease farming definitively, and where such farmers have leased out their entire holding and all entitlements for a period including 2013, they consequently do not have an automatic ‘allocation right’. In most cases they will not be ‘active farmers’ in 2015, and these 100% lessors cannot establish entitlements in their own right, nor enter into a PCC to transfer entitlements to the lessee.

The value of such leased entitlements will be lost to both lessor and lessee (but would remain in the overall fund for redistribution) unless the entitlements in question are transferred permanently by sale or gift before May 15, 2014, to a person who holds an allocation right, ideally the existing lessee.

“As all farmers who availed of this scheme had to retire from active farming, they had three options as to what they wanted to do with their entitlements. One, sell entitlements; two, transfer entitlements to an active farmer; three, lease entitlements. Those farmers who leased out entitlements that are now reverting back to them must act now to dispose of them before May 15, otherwise they will be lost. I am writing to all farmers in this position to advise them of all their options,” said the Minister.

When the Single Payment Scheme expires on December 31, 2014, new entitlements under the BPS in 2015 will go automatically to farmers who were entitled to a direct payment in 2013 (Single Payment, Grassland Sheep, Burren Life or Beef Data Scheme)

In general, the value of entitlements allocated to a farmer in 2015 will be based on a percentage of the value of entitlements (and where relevant, the Grassland Sheep Scheme payment received in 2014) owned by the farmer on the closing date for applications under the 2014 scheme year. When carrying forward the value of leased entitlements to the BPS in 2015, such value will be assigned to the owner (where the owner is eligible to participate in the BPS) and not to the lessee.

A lessor and lessee can carry forward an existing lease into the BPS by way of a PCC. However, to enter such an agreement, the lessor must hold an allocation right (from 2013), must remain an active farmer in 2015, and must also establish entitlements in his own right in 2015.

Mr Coveney said officials from his Department have had discussions with the Department of Finance regarding the tax implications of the transfer of leased-out entitlements. “It has been confirmed that, in accordance with tax law, this will give rise to a tax liability. I have written to the Minister of Finance outlining the situation and asking him to consider whether there are any options in this regard.”