THE proportion of investment motivated purchasers in the land market more than doubled to 31 per cent last year, said land agents.
And this was on the back of a 9 per cent-plus increase in 2010.
Now, growth in land values is expected to be more than 10 per cent this year, with further rises predicted for 2012.
“While the demand for farmland is influenced by a lack of supply and driven by existing farmers, there are good reasons why an investment in farmland may be appropriate from a tax planning perspective for traditional farming families and for so-called ‘lifestyle’ farmers alike. Indeed it is non-farming buyers which have competed with farmers in purchasing farmland thus pushing prices upwards,” said Mike Harrison of Saffery Champness.
“HMRC recognise farmland as being land occupied wholly or mainly for the purposes of food production either via the growing of crops for direct or indirect consumption or for the rearing of livestock, or both. For inheritance tax (IHT) purposes, it is worth remembering farmland is extended to include woodlands on the farm and any buildings used in connection with the farming business.
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“The two principal reliefs from IHT are agricultural property relief (APR) and business property relief (BPR). Both are subject to certain ownership conditions, and operate by reducing the value of assets which are liable to IHT.”
For let farmland the reliefs available at the applicable relief rates are given on the agricultural value of the property, which may be lower than its market value; for example where there is a possibility of future development or amenity value attached.
Let land
- 100 per cent for property, farmed under a tenancy which commenced after August 31,1995
- 50 per cent for most other tenanted agricultural land
- 100 per cent for interests in business assets owned by a sole trader, a partnership or shares in private companies carrying on a farming business
- 50 per cent for land, buildings and certain other assets used in a farming partnership or company, but owned personally
For in-hand land, the relief will be available on the market value. Mr Harrison said the structure of the business was of great importance if the maximum relief was to be available as property held outside the business structure was only eligible for the reduced relief.
“The availability of APR on the farmhouse is unique, reflecting the involvement of the farmer with the business. This means the appropriateness of the farmhouse is closely scrutinised by HMRC.”
But there are conditions on ownership. “To qualify for APR, the farmland must either have been owned by the farmer for seven years and used by someone else, for the purposes of farming, or to have been farmed in-hand by the farmer for two years.
Capital gains
“Farmers purchasing land following the introduction of the single payment regime on January 1, 2005 should note part of the cost could relate to the purchase of entitlement, which is separate from the land. The disposal of single payment entitlement is treated as a separate asset for capital gains purposes,” he said.Download your FREE Farmland Investment Guide here.
CG tax reliefs
- For in-hand farming, contracted or not, three CGT reliefs available on sale or transfer
- Rollover - on the replacement of land and farm buildings with other qualifying business assets following the sale of the original property
- Holdover - on gifts
- Entrepreneurs’ - on certain qualifying disposals and with a lifetime limit of up to £10 million of gains per individual
- Rules to treat all farming as one trade.
- Ability to average a farm’s financial results between tax years, if this reduces the tax liability.
- Election to treat a herd of breeding animals as a capital asset rather than trading stock.
- Some relief for losses against other income.
Source: Farmers Guardian