Buying agricultural land as an investment – is it a good idea?
Elizabeth Simpson of Crombie Wilkinson Solicitors gives her advice.
Farmland can be one of the safest forms of investment, as strong buyer interest and growing global demand for food has led to a steady rise in land values. There is also a strong attraction to using land for the production of renewable energy, through biomass crops or solar farms.
Although prices can vary widely depending on the type of land, quality, location and competition from buyers, in general the value of arable land in England and Wales has risen considerably over the past few years. last 20 years. Although agricultural land generates a low annual yield, it has much more to offer than grazing livestock or growing crops.
The majority of farmland buyers are existing farmers. They may seek to increase their land holdings to create a larger agricultural enterprise. Only a small proportion of land in the UK comes on the market each year, so the opportunity to buy neighboring land can be seen as a long overdue opportunity. As the UK agricultural market evolves, there is an even greater need for farm owners to increase the size of their estate to ensure their holdings remain competitive. However, we are also seeing a number of new buyers who want to buy rural land for amenity, lifestyle and sporting reasons.
Farmland owners can take advantage of a number of available tax benefits. Inheritance tax relief, which is normally charged at 40% of the value of an estate worth over £325,000, qualifies for 100% relief on the land after two years of property. But this only applies if the owner of the land is involved in the day-to-day management of the farm. There are benefits in terms of income tax management and generally many farm expenses and some farm expenses can also be offset through farm accounts. There are also ways to mitigate capital gains tax. Potential buyers must accept that land should be viewed as a longer-term investment, as tax benefits may come and go.
The scarcity of farmland on the market means it has become more difficult for buyers to find the right land at the right price. Therefore, when a sale is made, it is prudent to ensure that the sale goes through as quickly and smoothly as possible.
Although the seller of the land is obligated to respond to any direct inquiries regarding the property, it is the responsibility of the buyer to find out as much as possible about the land before purchasing. We will undertake a thorough investigation of the title deeds. and we will also submit research to determine issues such as rights of way, planning notices and permissions, mining rights and environmental issues. Pre-contractual inquiries are also carried out with the seller to cover rights to the basic payment scheme, rights to which the land is subject, leases, sports rights and environmental permits. If rights need to be formally registered prior to completion, we can help draft and negotiate the relevant documentation.
If you are considering renting purchased agricultural land, whether for agriculture or renewable energy, we can advise you on different forms of rental agreement (i.e. leases and licenses), and when the time comes, we can help you with any sale of the land to a new owner.
If you are considering buying a farm or agricultural land, please contact the Crombie Wilkinson Farm Properties team on 01653 600070 who can discuss the next steps with you.