Over the past five years, farmland has been seen as an investment comparable to many that could be made in the City, in terms of long term growth and security. There may have been a slight reigning back of land prices over the last twelve months, with Lincolnshire prime arable prices averaging £9,000 per acre on the Savills first quarter 2017 land survey, but the question remains whether investment is quite so attractive if the land is farmed.
Returns for farming land are currently estimated at between half and one percent of the capital employed. DEFRA’s research suggests that cereal, general cropping and pig and poultry farms tend to provide the greater returns on capital employed and the return tends to increase with the size of business.
To put this into context if 55 acres of land, ie £495,000 investment at today’s prices, is returning just £5,000; putting the same level of investment into residential property could realise £30-40,000 of income per year, perhaps even more with a little more active involvement.
Obviously there are many caveats drawn into the preceding example, and for many the opportunities required to achieve the land prices and returns would not arise, but it is important for farmers to ensure they are taking advantage of every opportunity that arises and to start to look at what may happen as the future of the basic payment scheme is debated.
The opportunity to become involved with property is one that can put in place an income stream as a contingency and if bought right, should hold its value. There are complications in terms of inheritance tax and have been changes in income tax recently for investment properties, so if this was something you were considering, Nicholsons would be happy to chat through the situation with you in advance of any transactions.