SFP = €20k (no deduction for costs)
Total taxable income: €35k
Therefore, unlike sales, the single farm payment is taxable in full.
The payment by one farmer to another to acquire a single farm payment entitlement is also not tax deductible for income tax purposes. However, where interest is incurred on a loan taken out exclusively for the purpose of acquiring a payment entitlement, this interest is tax deductible.
The income tax exemption in respect of the lease of certain farmland also provides exemption for single farm payments under certain circumstances.
Capital Gains Tax
The sale or gift of a payment entitlement by one farmer to another is subject to capital gain tax (CGT). If sold by the farmer originally entitled to the payment, the entire proceeds will be subject to CGT at the current rate of 25pc, as the farmer will not have paid to acquire the entitlement. If an entitlement is acquired from the farmer who was originally entitled to the payment, and this is then sold to a third farmer, the gain subject to CGT will be the difference between the proceeds of the sale to the third farmer and the amount paid to acquire the entitlement from the first farmer.
Example: Farmer A who held the original entitlements sells them for €20,000 to Farmer B
Farmer A will be subject to CGT at 25pc on the gain of €20,000, resulting in a CGT of €5,000.
If Farmer B then sells on the entitlements for €30,000 to Farmer C, a gain of €10,000 is made and CGT of 25pc or €2,500 is due.
Gains on the disposal of farm land may be exempt from capital gains tax due to retirement relief, subject to the qualifying conditions being met. The sale of a payment entitlement may also qualify for exemption where the land sold is connected to the payment entitlement and the sale of the land qualifies for retirement relief.
Capital Acquisitions Tax
Transfers of payment entitlement, whether by way of gift or inheritance, are liable to Capital Acquisitions Tax at the current rate of 25pc. The tax is payable by the beneficiary and is charged on the value of the gift/inheritance that exceeds the relevant tax free threshold. The tax free threshold depends on the relationship between the donor and the beneficiary. The current life-time threshold from parent to child is €332,084.
The transfer of a payment entitlement may qualify for agricultural relief or business relief, subject to the qualifying conditions being met, which reduces the taxable value of the gift or inheritance by 90pc.
There is a an exemption from stamp duty on the sale, transfer or other disposition of a payment entitlement.
A farmer who is not registered for VAT but who exceeds the threshold for registration (currently €37,500) by virtue of selling a single payment entitlement, will be obliged to register for VAT. Non-VAT registered farmers who purchase a single payment entitlement and suffer VAT will not be entitled to recover the VAT. Where a farm business, including payment entitlement, is sold as an ongoing business, the sale may qualify for VAT transfer of business relief, and will not be subject to VAT, provided the relevant conditions are met.
The single payment entitlement is treated like any normal asset in that normal tax rules apply to the receipt of income from, and acquisition and disposal of, the payment entitlement. It is worth reviewing the tax consequences of any transactions undertaken with your accountant or tax adviser to ensure that all income is returned, all reliefs are being availed of and all the necessary documentation is in place.
Aidan O'Boyle is a manager in Grant Thornton's taxation unit