The entitlement system could prove a field day for tax lawyers, as it raises a number of complicated questions.

Capital Gains Tax: Entitlements are assets, so their sale or permanent transfer is subject to CGT, even where they are sold with land. But not everyone will have to pay the tax, according to Strutt and Parker’s George Chichester.

“Entitlements replace previous forms of subsidy, such as beef and sheep quota, and it may be that a capital loss claim can be made in respect of that loss of capital value.”

Business asset taper relief: This is not available for entitlements transferred this year, because they will be brand new. In theory, a year’s relief will be available for 2006 transfers.

Value Added Tax: VAT is only payable on entitlements sold without land. Where they are transferred as a going concern with the land or leased, they are exempt.

Income Tax: Single farm payment income is subject to tax. It is mostly decoupled, though, so most of it does not have to form part of the end of year stock-taking valuation. Protein and Energy Crop payments must still be included in the STV.