The cost of bare agricultural land has never been higher – What you need to know
By Robert Blair, Partner and ARA specialist
Reports now suggest that the cost of bare agricultural land in England and Wales has hit a record high of £9,250 per acre – taking the annual rate of price growth to six per cent.
The cost of land has remained relatively stable within the wider agricultural sector compared to other assets, increasing as demand grows for high quality land that supports diversification, as in the case of bare land.
What does this mean financially for operators in the sector? Partner Mark Hildred investigates.
For buyers
For those looking to buy farmland, planning ahead is going to be crucial.
Farmland has significantly outperformed other asset classes in the past 12 months, including residential property, making it a major cost consideration for agricultural businesses.
Additionally, the average farm size in England is now 85 hectares, or 210 acres. At over £9,000 per acre for farmland, expansion is increasingly difficult for those without cash reserves and a pre-planned budget.
To achieve this, you should consider:
- Diversification – If you can add additional income sources without needing to purchase more land, you might consider new crops, livestock, alternative farming practices or agri-tourism.
- Reducing long-term costs – Tax planning and forecasting can help you to maximise savings and make the purchase more feasible in the long run.
- Planning expenditure – You may be able to reduce your Corporation Tax bill by planning certain capital expenditure around allowances, freeing up more of your cash reserves for investment in other assets such as land.
You may also be eligible for low-interest loans or Government grants that support expansion.
For sellers
On the other hand, those looking to sell farmland have a number of considerations – the major one being Capital Gains Tax (CGT).
With significant growth in the cost of farmland, gains made on sales are likely to be substantial.
As non-residential land, gains on farmland are subject to CGT at a rate of 10 per cent or 20 per cent, depending on whether you are in the Basic or Higher band of tax.
Make sure to plan the sale of any land to maximise your CGT allowance. You should also factor CGT into the value of any sale, particularly if you are selling land in order to fund another project or investment.
You should also seek advice on the value of your land to ensure that you are not pricing yourself out of the current market.
Taking the next step
Being able to freely buy and sell farmland is one of the most critical elements of expansion and growth for agricultural businesses.
While the high price of bare land is indicative of high demand, it also risks independent operators being unable to access the land that they need to grow.
Similarly, tax implications can present issues to sellers when margins are tight and proceeds are needed for other expenditure.
To circumvent these challenges and keep the land market moving, it’s important that you seek advice from an accountant specialising in agriculture and farming so that you are in the best place to buy or sell land.
For advice on the cost of buying or selling agricultural land, please contact one of our specialists today.