Farms offer investors a safe haven

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Private investors are flocking to buy UK farmland, attracted by rising agricultural land prices, substantial tax benefits and the asset’s “safe haven” status.

Farmland has risen in price from an average of £5,260 per acre at the beginning of the year to £6,223 per acre this month – an increase of 18 per cent – according to property consultants Strutt & Parker.

“Prices have really picked up in the last six to eight weeks,” says Charlie Evans of Strutt & Parker. “There’s been an increase in demand from private investors and foreign buyers, who see farmland as a safe haven.”

Prices have already topped those reached when the market peaked in 2008 but the latest forecast from Savills shows that investors can still expect annual growth of about 5 to 6 per cent until 2015.

The main driver is a higher ratio of buyers to sellers. “One of the reasons why the market is different this year is because it’s not just farmers driving it,” says Christopher Miles of Savills. “They have been joined by investors so an extra element of competition has been introduced.”

Miles says investors are looking for safer, traditional assets at a time of heightened volatility in European markets. “Land can be described as ‘gold with a cashflow’,” he says.

Yields from farmland remain low at about 2 per cent. However, the asset class remains attractive due to the potential for capital gains and tax benefits.

Farmland qualifies for agricultural property relief, which means that all the land, as well as a portion of the farmhouse, is exempt from inheritance tax (IHT) after two years – provided the owner actively farms the land or has a farming contract in place based on shared profit.

According to Miles, a block of bare land recently attracted six bids, three from farmers and three from buyers looking to take advantage of the IHT exemption. Other tax reliefs available to farmland owners include the ability to offset farm losses against their other income.

Investors can also get relief from IHT through funds that invest in UK farmland.

The Farm Fund, managed by Manor House Farms, is structured as a limited
liability partnership, which enables investors to qualify for IHT relief as they are viewed as joint owners of the land. The fund invests directly in farm businesses and provides capital to help farmers unlock growth potential. Jonathan Naughton, principal of the Farm Fund, says the fund aims to appreciate by 6 per cent a year. It requires a minimum investment of £25,000.

In January, Close Asset Management invested £5m in farmland managed by Manor House Farms, through its Close Trading Companies vehicle. This is an IHT-mitigation scheme that offers asset-backed opportunities for a minimum investment of £100,000. It aims to allow investors to defer or reduce a potential IHT bill.

Another option is the Braemar UK Agricultural Land fund. This is an open-ended fund listed on the Channel Islands stock exchange. It does not qualify for IHT relief but has the benefit of being more liquid and easier to buy into. It invests in arable farmland in the UK and is available through self-
invested personal pensions (Sipps), individual savings accounts (Isas) and offshore bonds. It has a minimum investment of £10,000.

Marc Duschenes of Braemar says farmland should be included in every
investor’s asset allocations. “It’s not correlated to other asset classes like commercial property or equities,” he notes. “Investors should see it as a long-term investment of between five to
10 years.”

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