The Royal Institute of Chartered Surveyors (RICS) has recently announced that the price of Welsh farmland has increased by around 13% in the last 12 months. Although Welsh land is not as expensive as that of our English neighbours, the cost of an acre of Welsh farmland averaged out at £7,500 for 2014.
A spokesman for RICS states that, whilst there has always been healthy interest in prime rural land, selling prices are being fuelled by interest from lifestyle farmers – those who buy up the land but have no interest in managing or working it – a trend particularly noticeable in the Principality. Renewable energy providers are also on the increase and prepared to offer top prices for land suitable for their needs.
This is not entirely good news though, as there is concern that farming landowners here in Wales will be tempted to cash in, particularly with the uncertainties which lie ahead in 2015 such as milk pricing, membership of the EU and changes in the subsidy system. Some may feel pressured into making hasty decisions with regard to selling off their land at a premium price, and this might have an adverse effect not only on the profitability of their business, but also the financial future for themselves and their families.
As well as considering the effects on the future of the enterprise, the burden of taxation must also be carefully considered before making any decision to sell farmland. There are many questions to be asked about the area to be sold, because the way disposal of land affects a business is reflected in how any gains or profits are treated for tax purposes. For example, a sale which does not diminish the viability or change the nature of a farming business will be unlikely to attract any Entrepreneur’s Relief. The disposal of redundant land could be viewed as the sale of an asset rather than the sale of part of the business and would therefore be subject to Capital Gains Tax at the full rate. There might even be a need to reconsider Inheritance Tax planning, particularly if the area to be sold is significant. However, if the proceeds are to be re-invested in another business asset, there may be an entitlement to Rollover Relief, dependent on timing issues. In some cases where the farmhouse is sold and the farmer has to re-locate, Principal Private Residence Relief might apply.
It sounds obvious, but farmers considering selling land should always seek professional advice beforehand. As always, each case needs to be considered on an individual basis, as what applies in one instance, may not be relevant in another.
If you are a farmer and considering selling some of your land please contact us for the best advice to help you make the best decision for you and your business.
Please note: This article is a commentary on general principles and should not be interpreted as advice for your specific situation.
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