Break­ing down bound­aries

More tax re­liefs and pol­icy ini­tia­tives are needed to in­crease farm con­sol­i­da­tion and lower the age pro­file of farm­ing, writes Anne Kin­sella

Irish Independent - Farming - - FINANCE FARMING -

LAND frag­men­ta­tion is an is­sue that’s of­ten high­lighted as an im­ped­i­ment to achiev­ing tar­gets for growth in the farm­ing sec­tor.

It is also cited as a source of in­ef­fi­ciency — the the­ory is that a farm that con­sists of two or more plots of land will not op­er­ate as ef­fi­ciently as would be the case if the plots were re­or­gan­ised and com­bined.

Frag­men­ta­tion adds to farm costs and re­duces op­er­a­tional ef­fi­ciency.

Ad­di­tional costs in­clude ex­tra labour, travel time, stock move­ment and in­spec­tion, and ex­tra ma­chin­ery and fa­cil­i­ties.

With an in­creased num­ber of bound­aries, frag­men­ta­tion may also cre­ate greater po­ten­tial for dis­putes be­tween landown­ers.

The av­er­age num­ber of sep­a­rate land parcels per farm in Ire­land in­creased from 3.1 in 2000 to 3.8 in 2010 (Cen­tral Statistics Of­fice). In 2010, well over half the to­tal num­ber of farms in Ire­land (80,000) had three or more sep­a­rate land parcels.

Frag­men­ta­tion may oc­cur at var­i­ous stages in the evo­lu­tion of the agri­cul­tural hold­ing. A sin­gle farm may con­sist of nu­mer­ous dis­crete plots, of­ten scat­tered over a wide area.

So why is it that farm frag­men­ta­tion is on the in­crease? Or is it? How does land frag­men­ta­tion dif­fer re­gion­ally? Is this a cause for con­cern?

Dairy ex­pan­sion in the south cou­pled with the in­creased mo­men­tum among dry­s­tock farm­ers to con­vert to dairy may partly ex­plain this phe­nom­e­non.

Land frag­men­ta­tion is par­tic­u­larly pre­dom­i­nant in the west and bor­der re­gions.

Farm struc­ture in the west re­gion in par­tic­u­lar needs some pos­i­tive in­ter­ven­tion via more tar­geted tax­a­tion and pol­icy in­cen­tives.

Farm frag­men­ta­tion, cou­pled with smaller farm hold­ings and an age­ing farm pop­u­la­tion, is ex­ac­er­bat­ing lower av­er­age farm in­comes al­ready preva­lent on the ground.

In com­par­i­son to the na­tional av­er­age farm in­come of just over €31,000 (Tea­gasc Na­tional Farm Sur­vey), in­come in the west re­gion av­er­ages just €17,876 for 2017.

This re­flects the higher pro­por­tion of dry­s­tock farms in the west, with an av­er­age farm size of 35.7 ha — the low­est av­er­age farm size across the eight re­gions, com­pared to the na­tional av­er­age farm size of 45.3ha.

Tax costs on land sales are also puni­tive for many farm­ers. These taxes must be paid even if the money is rein­vested in land.

That said, some pos­i­tive changes are oc­cur­ring to pro­mote farm con­sol­i­da­tion.

In re­cent years, a num­ber of schemes have been in­tro­duced to as­sist farm­ers to con­sol­i­date their hold­ings.

These schemes of­fer a re­duc­tion in ei­ther stamp duty or cap­i­tal gains tax (CGT), the two taxes re­lat­ing to the pur­chase or sale of land. In Bud­get 2018, stamp duty and CGT re­liefs were com­bined into one scheme.

The po­ten­tial tax sav­ings on re­struc­tur­ing can be quite ad­van­ta­geous for farm­ers who qual­ify.

CON­SOL­I­DA­TION RE­LIEF

Con­sol­i­da­tion re­lief may ap­ply where land is dis­posed of and re­placed with other land to re­sult in a less frag­mented farm.

The re­lief re­duces the rate of stamp duty on el­i­gi­ble trans­fers of land from the cur­rent rate of 6pc to 1pc for qual­i­fy­ing ap­pli­cants on the ex­cess value of the land pur­chased over the value of land sold.

For this re­lief to ap­ply, the pur­chase and sale trans­ac­tions, in­volved in the con­sol­i­da­tion must oc­cur within 24 months of each other, with the ini­tial sale or pur­chase of qual­i­fy­ing land tak­ing place in the pe­riod Jan­uary 1, 2018 to De­cem­ber 31, 2019.

In such a sit­u­a­tion stamp duty will only ap­ply at the rate of 1pc on the ex­cess. If you are plan­ning to re­struc­ture your farm, the first trans­ac­tion must be com­pleted by De­cem­ber 31, 2019.

Young trained farmer re­lief is also avail­able, but you must meet spe­cific cri­te­ria to gain it.

On land dis­posed of dur­ing one’s life­time the cap­i­tal gains tax rate is cur­rently 33pc.

When a farmer dis­poses of farm­land dur­ing his life­time, by sale, gift or ex­change to an­other per­son, CGT rules ap­ply.

CGT can be sub­stan­tial if the land is in your own­er­ship for a sig­nif­i­cant time pe­riod.

The con­di­tions at­tached to the EU State Aid ap­proval also re­strict the scope of the CGT re­lief to agri­cul­tural land only. Re­lief is only avail­able to claimants who are is­sued with a Farm Re­struc­tur­ing Cer­tifi­cate by Tea­gasc.

Re­struc­tur­ing your farm may not be as easy as swap­ping a field with your neigh­bour. It may in­volve more com­plex and nu­mer­ous trans­ac­tions with var­i­ous par­ties.

The sale of an ex­ist­ing farm and the re­place­ment of it by the pur­chase of an­other farm is not farm re­struc­tur­ing for the pur­poses of this re­lief.

It is im­por­tant to seek tax­a­tion and le­gal ad­vice be­fore entering into any trans­ac­tion. The re­liefs, if fully availed of, by a qual­i­fy­ing ap­pli­cant re­duce the CGT li­a­bil­ity to zero.

CON­SOL­I­DA­TION BEN­E­FITS

Farm con­sol­i­da­tion leads to a re­duc­tion in the frag­men­ta­tion of the farm and con­se­quen­tially an im­prove­ment in the op­er­a­tion and vi­a­bil­ity of the con­sol­i­dated farm.

But it is the case that pol­icy and tax­a­tion in­cen­tives can only go so far in nudg­ing farm­ers to change their be­hav­iour with re­gard to land frag­men­ta­tion?

Con­sol­i­da­tion is a com­plex area and no two farms are the same.

A de­ci­sion to con­sol­i­date is not an easy one. It may in­volve giv­ing up a plot of land which is the re­sult of gen­er­a­tions of fam­ily labour.

Look­ing be­yond these emo­tional ties and fo­cus­ing on the eco­nomic and ef­fi­ciency im­pli­ca­tions is the first chal­lenge.

A farmer’s re­la­tion­ship with their land is also a com­plex one.

The farm and the in­di­vid­ual plots and bound­aries rep­re­sent a patch­work quilt of the farmer’s achieve­ments over their life­time.

Life­long mem­o­ries are in­volved as well as the mem­o­ries of gen­er­a­tions past.

A bound­ary may not just be a phys­i­cal bound­ary but an emo­tional one too. The story of a fam­ily’s toils can be etched in a plot of land.

The key to smooth con­sol­i­da­tion which works for all par­ties is good com­mu­ni­ca­tion and in­for­ma­tion.

Ev­ery sit­u­a­tion is unique and some sit­u­a­tions can be tricky, but there may be so­lu­tions that peo­ple don’t know about ÷ It is im­por­tant that farm­ers fa­mil­iarise them­selves with the main con­di­tions for re­liefs by talk­ing to their farm con­sul­tant or Tea­gasc ad­vi­sor. More in­for­ma­tion is also avail­able on the De­part­ment of Agri­cul­ture and Tea­gasc web­sites.

Anne Kin­sella is an econ­o­mist with the Tea­gasc, Ru­ral Econ­omy & De­vel­op­ment Cen­tre, Mel­lows Cam­pus, Athenry, Co Gal­way email: anne.kin­sella@tea­gasc.ie

BOUND­ARIES ARE NOT JUST PHYS­I­CAL, THEY CAN BE EMO­TIONAL TOO AND THE STORY OF A FAM­ILY’S TOILS CAN BE ETCHED IN A PLOT OF LAND

un­til they ac­tively in­ves­ti­gate them.All ob­sta­cles can be over­come, al­beit some may prove more dif­fi­cult than oth­ers, but with tar­geted in­cen­tives the path and fi­nan­cial bur­den may be some­what eased.

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