Kieran Coughlan: Entitlement trading attractive for some but beware of pitfalls

The land leasing market is in full swing, as farmers make arrangements with land owners for the coming season.

According to auctioneers, the rents commanded for many five-year lease renewals are staying broadly the same, but with tillage conacre prices dropping as much as €40 per acre.

Meanwhile, some exceptional prices are still being obtained for exceptional lots, with conacre for potato cropping, and longer term letting of grassland accessible to dairy milking platforms still commanding high prices.

According to one auctioneer, the Basic Payment Scheme regime is holding up the rental market.

Farmers with entitlements activated on rental ground are slow to give up rented land, in a bid to keep their entitlements alive.

Under relatively new rules, farmers can choose to drop rental land and instead lease out their entitlements.

This is a relatively new departure. Under previous rules, a farmer who wanted to lease out their entitlements must have leased out at least one hectare for every one entitlement.

But farmers are sceptical of taking this approach, fearing that leasing out excess entitlements may work against their future positions, in the expected CAP review in 2019 or 2020.

The “use it or lose it” rules of the entitlement regime result in many farmers looking to retain their status quo.

Basic Payment Scheme entitlements must be activated at least once in every two years, either by the farmer themselves or leased out to another farmer, in order to prevent these entitlements from being lost, going into the national reserve.

If a farmer chooses to lease out entitlements for one particular year, they can continue to lease out entitlements in the following year without having their entitlements lost to the reserve.

In the coming weeks, it is expected that farmers will receive a statement from the Department of Agriculture confirming their total owned entitlements, and the number of entitlements claimed in 2016.

This will give farmers certainty on their positions for the coming entitlements year, 2017.

The change in rules allowing farmers to lease out bare entitlements is providing a new business stream for some specialised auctioneers.

Those entering entitlement leasing arrangements, be they the owner, auctioneer or renter, should ensure that they are fully au fait with the scheme rules, and that necessary precautions are taken. Problems can arise where the application for transfer of entitlements is not submitted within the relevant timeframe, resulting in loss of entitlements.

Problems can also arise where the tenant loses some of the payment as a result of, say, failing a cross-compliance inspection, or not meeting greening criteria.

From a farmer’s perspective, it is worthwhile considering leasing out excess entitlements, where the economics of renting land simply to activate entitlements are simply not adding up.

For tillage farmers, the failure to secure any meaningful uplift in grain prices over the past three years leaves them in a position where many of them should consider whether they would be financially better off leasing out entitlements and dropping expensive rental land.

Unfortunately the option of stacking no longer exists, which has increased dependence on rented land.

Meanwhile, farmers considering selling entitlements are hoping for a quick clarity on the quantum of claw-back attributable to such sales. The market for selling entitlements has dried up considerably, since the re-introduction of the 50% claw-back on sales since 2016.

From a taxation perspective, rental income derived from leasing of bare entitlements is not regarded as exempt from income tax. But, as always, each individual should obtain professional advice relevant to their own circumstances.


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