Purchasing agricultural land as an investment - is it a good idea?

Agricultural land can be one of the most secure forms of investment, as strong interest from buyers and increasing global demand for food has caused land values to steadily increase. There is also a strong attraction to use land for renewable energy production, through biomass crops or solar farms.

Buying farmland and agricultural land

Although prices can vary wildly depending on land type, quality, location and buyer competition, in general, arable land values in England and Wales have risen significantly over the last 20 years. While agricultural land does generate a low annual return, it has much more to offer than grazing livestock or growing crops.

The majority of buyers of agricultural land are existing farmers. They can be looking to increase their land holdings to create a larger farming enterprise. Only a small proportion of land in the UK comes on to the market every year, and so the chance to buy neighbouring land may be seen as a long anticipated opportunity.

As the UK agriculture market evolves, it is even more necessary for farm owners to increase the size of their estate to ensure that their farms remain competitive. However, we are also seeing a number of new buyers who wish to purchase rural land for amenity, lifestyle, and sporting reasons.

Do you pay tax on agricultural land in the UK?

Owners of agricultural land can enjoy a number of available tax benefits. Inheritance Tax relief, which is normally charged at 40% on the value of an estate worth over £325,000 qualifies for 100% relief on the land after two years of ownership. But this only applies if owner of the land is involved with the running of the farm on a day to day basis.

There are also benefits in terms of managing income tax and, typically, many farming expenses and some farmhouse expenses too can be offset through the farm accounts. There are also ways of mitigating capital gains tax. Potential buyers should accept that land has to be considered a longer term investment as tax benefits may come and go.

Process of buying agricultural land

The scarcity of agricultural land on the market means that it has become more difficult for buyers to find the right land at the right price. Therefore, when a sale is agreed, it is prudent to ensure that the sale proceeds as smoothly and quickly as possible.

Although the seller of the land is obliged to answer any direct enquiries with regards to the property, the onus is on the buyer to find out as much as they can about the land prior to purchasing.

Our agricultural property team will undertake a thorough investigation of the title deeds. and we will also submit searches to determine matters such as rights of way, planning notices and permissions, mineral rights, and environmental issues. Pre- contract enquiries are also raised with the seller to cover basic payment scheme entitlements, rights which the land is subject to, tenancies, sporting rights and environmental permits. If any rights are required to be formally registered prior to completion, we can assist with drawing up and negotiating the relevant documentation.

If you plan on leasing any agricultural land purchased, whether for farming or renewable energy, we can advise on different forms of tenancy agreement (i.e. leases and licences), and when the time comes, we can assist with any sale of the land to a new owner.

If you are considering purchasing a farm or agricultural land, please contact Crombie Wilkinson’s agricultural property team on 01653 600070 who will be able to discuss the next steps with you.