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Farming

Selling entitlements may lose you money by 2019

Farmers attempting to 'double up' their entitlement payments ahead of the new programme starting in 2015 will often be worse off by 2019.

This is the stark conclusion that can be drawn from the table below.

It shows that farmers looking to increase the value of their Single Farm Payment by selling their current entitlements to buy ones worth double the value stand to loose hundreds, and possibly thousands of euro in the process.

EXPENSES

"Farmers think they are going to double their money, but in reality most of them are going to lose out big time," commented Donegal-based consultant, Brian Dolan.

"Because the purchases and subsequent income are not tax-allowable expenses, along with the fact that there is hefty Capital Gains.

"Tax of 33pc on whatever you get when you sell the entitlements, the vast majority of farmers will find that there's absolutely no benefit from trying to trade up," said the Creeslough-based consultant.

In our examples, we look at three scenarios:

a)A farmer with 20ha and entitlements worth €100/ha looking to trade up to the same number of entitlements worth €200/ha;

b)A farmer with 40ha and entitlements worth €100/ha looking to trade up to the same number of entitlements worth €200/ha;

c)A farmer with 20ha and entitlements worth €200/ha looking to trade up to the same number of entitlements worth €400/ha.

In each case, the farmer actually stands to lose money. The amounts that they would lose would be significantly higher if the value of the entitlements or the areas involved were higher.

We assumed in each case that the value of the entitlement was based on the amount it would qualify for in 2014.

This is approximately 10pc higher than the 2013 value for all amounts over €5,000 in value.

ENTITLEMENTS

Mr Dolan pointed out that there were always going to be situations where it does make sense for a farmer to buy entitlements, especially where there were naked acres involved.

However, none of these calculations taken into account the impact of future CAP reforms on the value of entitlements.

It is likely that entitlements that are still worth more than the national average figure after all deductions in 2019 will be reduced further in subsequent reforms of the CAP, which could reduce the overall value of higher value entitlements even more when compared to lower value equivalents.

Indo Farming