Others intending to lease out their land — or those with land and entitlements currently leased out — are still not entirely sure of their position.

Changes under BISS

Under the Basic Payment Scheme (BPS), the payment was broken down into a basic income support comprising about 70pc of the total.

The remaining 30pc comprised Greening, and most farmers qualified for the combined payment.

Under BISS, there are three elements: a basic income support element; an eco-scheme; and Complementary Redistributive Income Support for Sustainability (CRISS).

It is anticipated that most farmers will qualify for all three elements but over the first four years of the scheme, higher-payment-value entitlements will progressively yield a reduced payment while lower-value entitlements will progressively yield a higher payment.

For example, by 2026 a typical farm size of say 100ac with entitlements currently yielding €450 each per annum will be reduced to €321, a drop of 29pc. An entitlement yielding €150 will rise by 61pc to €242.

Current position

Farmers selling entitlements in 2022 will suffer a 20pc clawback — and it is the seller who generally takes the hit.

For 2023 and 2024, there will be no clawback, so farmers intent on selling entitlements would benefit substantially by waiting until 2023.

An exception might be those with higher-value entitlements, who currently could expect to achieve a multiple of 2½ times payment value. Allowing for the 20pc clawback that will apply in 2022, the net proceeds will equate to double the payment value, which may be as good as it gets from 2023 onwards.

So they may be as well off to sell before the May 2022 deadline.

Currently, higher-value entitlements tend to be making a higher multiple of payment value than lower-value ones.

Typically, entitlements yielding an annual payment of €300 or more will realise 2½ times their payment value, while entitlements of €200 or less will yield a maximum of 2 times.

This is likely to change, if not reverse, in 2023 as entitlements yielding a payment of greater than €260 will suffer a cut spread over the years 2023-26.

This could amount to a drop of up to 45pc for the highest-value entitlements, while lower-value entitlements could rise by a similar amount, subject to a maximum increase of around €80 per entitlement.

Leased land and entitlements

‘Armchair farmers’ are now a protected species, at least until 2026. They can continue to lease entitlements with or without land, provided the lease is for a term greater than four years.

Leases of less than four years will suffer a clawback of 10pc of the number of entitlements.

Until this issue was clarified, some farmers had considered selling their entitlements as they were not sure if they would be allowed to continue leasing due to them not being active farmers.

Now the decision is simply down to whether selling makes financial sense.

Entitlements that are leased out will be treated exactly the same as all other entitlements in that they will increase or decrease in value over the years 2023-26 along the lines set out above.

But they will be unaffected by the value of the tenant’s entitlements, as was the case previously.

Advice

Selling entitlements will not make sense for anybody except those in dire need, who have no choice but to sell.

Even those with high-value entitlements that are facing a substantial cut would be foolish to sell because there is a reasonable possibility that the entitlements, albeit with a reduced payment, may still yield a respectable payment in whatever scheme succeeds BISS.

Secondly, there will be Capital Gains Tax. In the vast majority of cases, the entitlements will have been acquired at no cost, so the tax will be 33pc for those who have leased them for the past three years or more, and 10pc for those who have farmed the entitlements for three out of the past five years.

The only possible exception is where entitlements are being sold with land, in which case they may be exempt from tax.

If you are considering a sale, the sums need to be done.
 

Case study

Joe and Mary own 80ac (32ha) in joint ownership and have 32 entitlements that currently yield an annual payment of €300 each including Greening.

In 2023 they intend to cease farming, lease their land and sell their entitlements. But they have been advised that leasing the land with the entitlements would be a better financial option.

They have a prospective tenant who is offering rent of €220/ac and is willing to buy their entitlements for €700 each.

Alternatively, the tenant is willing to lease the entitlements for 80pc of whatever payment they yield.

We will compare how Joe and Mary will fare over the first five years of BISS if they lease the entitlements or if they sell them.

If they sell their entitlements, the net sale proceeds after tax at 10pc will be €20,414. If they lease them, they should receive a rent of €36,922 over the first five years.

This income will be tax-free as the combined land and entitlement rent falls under the annual lease exemption threshold of €36,000 for joint owners.

So, by retaining their entitlements, Joe and Mary will be better off to the tune of €16,508 over the next five years, not to mention the possibility of the entitlements continuing to yield a return after five years.

The advice is to resist the temptation of an up-front lump sum and hold on to their entitlements.

Martin O’Sullivan is the author of the ACA Farmers’ Handbook and is a farm business and tax consultant based in Carrick-on-Suir; www.som.ie