entiltelments

ellewood

i have 10 hec of land with no entitlements on it ive been waiting from national reserve since 2008 but still no joy so i am thinking about just buying some to put on so i have em. iphoned round a few weeks ago and ones around 600/hec were making around 1.7 times there value which would mean by time commission vat and modulation is taken out(10%) there would be a small bit left and youd have em from 2013 on if thats what decided on cap budget, but phoned today and the same value ones - around 600 are now looking for 2.1 or 2.2 times their value which would mean from no to 2012 they wouldnt leave you much over the cost of buying them

has any one else any experiance of buying them and was it worthwhile or not

tks

agcons

The total modulation deduction over the 3 years will be 27% ie you will only receive 2.73 times the face value of the entitlements (assuming you dont incurr any penalties). If you are borrowing the money then you need to factor in this cost, or if you have the cash then allow for the interest you could get if you put it on deposit and deduct this from the 2.73 ( eg 3% per annum simple interest brings the payoff down to 2.64)
The whole post 2012 situation is up in the air so difficult to calculate the hope value of entitlements. One guess is as good as another.
Personnaly I think if the cost is gone over 2.0 then you are better selling than buying. Strictly from an investment point of view the lower value entitlements, selling at a lower ratio are better value.
If you buy to claim on rented land then the risk factor is greater due to uncertainty about rent levels in one and two years time

ellewood

thanks thats a great help done figures alright and at over 2 with interest payments over 3 years it would cost you money but at 1.7 there would be a small bit over youre costs so may try get as high a value as i can for around this values but there only getting dearer as 15 may approaches so we will see. i am claiming them on land i have leased for 7 years for the installation aid but that went out the window, so theres another 4.5 years on lease so will be able to claim them until 2014 any way, depending on what happens in 2012 but a lot of lads that are paying 2.5 times value on high value - over 750.00 will be hoping there worth that in 2013

adne

can someone explain how the entitlements work in lay mans language...

wiggy123

entitlements are over-priced at the moment! as who knows what will happen post-2013..
anything over 1.5 times its value, is not worth it...u'll be down money!

ellewood

i agree totally but i cant see them being worthless come 2013 but deffo at 2 times their value their not worth the gamble at anything under 1.7 and around 600 value they would i think ill wait till nearer the 15 may might get em at right price as lads might think thed be left with em lots of lads have them on ground which is covered with scrub and ey need to sell em or they will loose em altogether

agcons

adne wrote: »

can someone explain how the entitlements work in lay mans language...

To claim payment on an entitlement you need one hectare of land, regardless of the value of the entitlement. The original value of an entitlement was calculated by taking the farmers average annual payment (of cattle sheep and tillage premia) over the years 2000, 2001 and 2002 and dividing this figure by the average number of hectares claimed in those years. Over the years since then various farmers situation s have changed, some have acquired land without entitlements attached to it and want to use this land to claim or draw down entitlements, others have lost land (eg sale of sites or land to non farmers) and now dont have enough hectares of land to draw all of their entitlements on. Hence a market has developed with buyers and sellers. There are numerous reasons why people want to buy or have to sell but thats it in a nutshell.
By buying entitlements now you are basically buying cashflow over the next 3 years plus an element of hope value for the years after.

ellewood

what in youre opinion is the most likely sinario after 2012.. i know no one knows for sure but what are their options

all on dea averages on total

dea average on all over a cirtin treshold

some other??

DagneyTaggart

Do you have to pay income tax on entitlements?

JohnBoy

DagneyTaggart wrote: »

Do you have to pay income tax on entitlements?

Yes, they are taxed in the same way as any other income from the land they are attached to.

DagneyTaggart

Is this example accurate lads?

Guarenteed for three years:

Income = 3
Expense = 2
Diff = 1

Profit after tax = 0.60

arrowman

I ran a few figures for the breakeven price you could pay for an entitlement - that is what you could afford to pay and just get your money back.

The biggest factors influencing the price are

• The rate of tax your likely to pay on the annual additional Single Farm Payment from the bought entitlements. Remember these taxes have gone up in the last two budgets specifically the healthe levy and the income levy. Even on the low rate of tax you'll be paying around 30% of the entitlement income in tax. If you're on the high rate it will be closer to 52%!!
• Modulation deduction - the EU are slicing off a % of the annual entitlement income every year. The % deduction is 8% this year, 9% in 2011 and 10% in the final year 2012. So taking an entitlement with a paper value of €600 the annual income from this will be €552 (2010) , €546 (€2011) & €540 (€2012)

If you have to borrow to buy them then that's an additional cost to you which will reduce the breakeven value.

By my reckoning the most you can afford to pay and breakeven is

• On low rate of tax - 1.85 times the value
• On high rate of tax - 1.3 times the value

People are paying way more than this but that is because they are speculating on the additional value these entitlements may have after 2012- and nobody knows what this will be.

ellewood

whats the break even multiple if you are on low rate of tax and were to borrow the money at say 5% over the 3 years.