Single Farm Payment - Finance Act 2006 Amendments

Tax Briefing, Issue 61, November 2005, contained a comprehensive analysis of the tax treatment of transactions relating to the Single Payment Scheme for farmers.

Sections 12, 70, 109 and 118 Finance Act 2006 amended certain aspects of the taxation treatment of the scheme, relating to income tax, capital gains tax, stamp duty, and capital acquisitions tax. As this legislation is effective from the year 2005, paragraphs 2.11, 3.7, 4.2, and 5.1 all need to be replaced. These paragraphs are replaced with the following text.

2.11 Income from Leasing Payment Entitlement

Payment entitlements linked to the requirement to occupy land may only be leased from one person to another if the lease also transfers an interest in land.

In these circumstances, income received in respect of the land will be taxed under Case V, while income received in respect of the payment entitlement will be taxed under Case IV as miscellaneous income. Even if agreements between lessors and lessees do not apportion the amounts payable in respect of land and in respect of payment entitlement, the lessor will be obliged to identify the amount received for payment entitlement separately when making a tax return. The relief available to certain farmers under Section 664, which allows them to lease out farmland with certain income being exempt, was extended by Finance Act 2006 to cover income under qualifying leases relating to single payment for years 2005 and later. Accordingly, there is no need to apportion receipts under such leases between amounts paid in respect of land and amounts paid in respect of payment entitlement.

Certain Special Condition Entitlements (e.g. those paid by reference to animals slaughtered rather than to land) may be leased without land. Income from such leasing will be assessable under Case IV.

3.7 Retirement relief

Section 70 FA 2006 provides, with effect from 1 January 2005, that a payment entitlement is a qualifying asset for retirement relief purposes where it is disposed of at the same time and to the same person as land that would support a claim to payment in respect of that entitlement.

4.2 Agricultural Relief

Agricultural relief can apply to “agricultural property” only. This is defined in Section 89(1) Capital Acquisitions Tax Consolidation Act, 2003 as:

1. agricultural land, pasture and woodland situate in the State and crops, trees and underwood growing on such land and also includes such farm buildings, farm houses and mansion houses (together with the lands occupied with such farm buildings, farm houses and mansion houses) as are of a character appropriate to the property, and farm machinery, livestock and bloodstock on such property, and
2. a payment entitlement (within the meaning of Council Regulation (EC) No 1782/2003 of 29 September 2003 (OJ No L270 of 21 October 2003, p.1).

A payment entitlement can therefore qualify for agricultural relief.

Agricultural land which is taken out of production can still qualify for agricultural relief when transferred because Section 89 CATCA, 2003 does not require the land to be in production either continuously or at a specific time. So, for example, agricultural land set aside to rotational, or even permanent fallow, can still qualify as agricultural property within the definition of Section 89 CATCA, 2003.

5.1 Transfer of Payment Entitlement

Section 101A Stamp Duties Consolidation Act, 1999 (SDCA) provides for an exemption from stamp duty on the sale, transfer or other disposition of a payment entitlement.

This exemption applies to instruments executed on or after 1 January 2005.

Apportionment

Where the payment entitlement forms part of a transaction consisting also of chargeable property, the consideration is to be apportioned on a just and reasonable basis as between the payment entitlement and the other property. The part of the consideration attributable to the payment entitlement should be disregarded when determining the liability to stamp duty on the chargeable property.

The electronic version of Issue 61 on the Revenue website has been amended to include this text with the old interpretations deleted.