Fresh Invest

Farmland has proved one of the most resilient commodities throughout the recession

Farmland:

Historically this has been an expensive investment that shows a very small yield.

The investor would be purchasing a working farm with a tenant and the quality of the tenant had a large impact on the return (by way of rent) the landlord could expect.

The returns were low and during buoyant times, with good returns on residential  buy to let and commercial property,  they were favourable because the rental yield was often double the let farm yield.
However capital values have shown remarkable resilience for agricultural land,  as opposed to buy to let and commercial property,  and have been seen as a shelter, like gold, during turbulent times.

The Future:

Modern farming methods have moved the concept of working farms to a new level.

Now contract farm contractors will use their own machinery to clear the land, advise on crop selection, sow the crop, maintain it, harvest it and sell it for you. The good news is you can do all this from home.

There are two avenues to owning farmland.

For the first you need about 100 acres / 50 hectares, for the exercise to be commercially viable for contract farming.

The other method is to join a Limited Liability Partnership where a number of likeminded individuals, companies or pension funds combine their funds to purchase a percentage of a farm fund and are involved with the major decisions of the farms development.

Demand:

The demand for farm land is always strong with more mouths to feed as populations grow.

The need to plant energy crops for bio-fuel or bio-mass and the land use demands of housing all make the value of land, a finite resource, rise.

There are other attractions to the ownership of land, the ability to visit it, there could be retained benefits like shooting or fishing if that’s to your interest. Or just to walk the fields can be very therapeutic and will be encouraged by the farm manager.

Tax Advantages:

Farming has always had favourable tax treatment with both capital and inheritance tax and expert taxation advice is essential to reap the maximum rewards for this asset class.

Costs:

UK land prices are high but by no means the highest in the EU and are around £5500-£8500 per acre (04/11).  Owning a manageable plot you will need about 100 acres so half a million is the entry level for direct ownership or if you join a LLP you can get an interest in the land holding partnership for £10,000.

The ownership of this type of asset is also SIPP and SAPP compliant provided that no personal benefit is derived; again a consultation with a SIPP provider is essential.

In summary:

Owning farm land is a long term investment and the return is mainly in the capital value appreciation.

Income from the activity is still important and the collection for all grants available help the income return.

The ability to change between crops with advice from a farm managers or contract farmers could find you growing potatoes one year; oil seed rape the next and a wind farm with crops underneath the next.

So there is flexibility and excitement in what your land can produce.