Essential Tips for Buying Agricultural Land

There are many reasons for buying agricultural land. You may want to start or expand a farming business, or purchase as an investment or development opportunity.

Whatever your motivations may be, there’s a lot to think about. These include the length of the process, how easy it is to obtain planning permission, the costs involved and the return on your investment.
Speaking with a solicitor who has an in-depth knowledge of the agricultural sector means you can obtain much-needed support at every stage of the process.

Is Buying Farmland a Good Investment?

Buying agricultural land has long been seen as a secure source of investment. With an ever-expanding population and increasing demand for food, existing farming businesses will understandably want to expand to take advantage of this. Meanwhile, more scrutiny on our impact on the environment has led to increased demand for renewable energy sources like solar power and land used for battery storage. 

There are many other reasons why buying farmland is a good investment, such as:

– Increasing Land Value

A strong appetite from buyers and the increasing levels of demand detailed above has seen the price of farmland continuously rise. Only a small proportion of agricultural land makes it to market each year, so this will naturally have a positive impact on prices.
This lack of supply and strong demand shows no signs of abating, meaning if you are successful in purchasing agricultural land, you should expect to see good returns on your investment if you subsequently decide to sell it on.

– Variety of Uses

It’s not just for rural businesses or renewable energy purposes that farmland can be used. One of the main benefits of buying agricultural land is its versatility. Subject to the right planning permission being obtained, other potential uses include:-

  • Development: The land can be used for things like residential, public or commercial development.
  • Renewable Energy: We are seeing more interest from Energy Companies looking to utilise land to create or store energy resources.
  • Lifestyle: People who own land which borders agricultural land may want to purchase it to extend their property, which can inflate the value due to the marriage value (as it connects directly to the buyer’s existing property).
  • Sports and Recreation: Agricultural land can be used for activities such as fishing, quad biking, or sporting events. 
  • Amenities: With many people now looking to take advantage of the outdoors and explore the countryside following the lockdowns, different amenities such as cafes could be developed to cater for them.

With such a variety of options, it would be wise to seek advice from a specialist who can guide you on what would be best for your circumstances.

– Tax Benefits

Owners of farmland can also enjoy significant tax breaks. Profits can be offset against losses over a rolling period of time, thereby reducing Income Tax. Many expenses from the business can also be offset through the accounts, while there are also ways to reduce Capital Gains Tax.

Perhaps one of the most important tax benefits buying agricultural land offers is with Inheritance Tax. Provided you are involved in the running of the farm, you can qualify for 100% relief on the land after two years. 
Of course, these benefits should be managed as part of a comprehensive tax management strategy, which can also include the use of trusts and measures to protect your business and investment should something like a divorce occur. 

Be Sure About Motivations

It’s worth pointing out that HMRC can investigate agricultural land transactions, so you need to ensure you would be totally involved in the day-to-day running of the business to qualify, or at the very least be certain the main farmhouse is being entirely used for farm purposes.

Tax benefits will often come and go, so it’s important to have a clear understanding of your motivations and what’s involved before you begin.

Agriculture - Outside of Tractor

Top Tips When Buying Farmland

Once you’ve made the decision to buy agricultural land, there are several key elements to be aware of if the process is to go as smoothly as possible. Here are just a few:

– Check the Title

Given that farms can be passed down through families for generations, large areas of land still remain unregistered with the Land Registry. Check if the land you’re thinking of purchasing is fully registered, and if there are any covenants and restrictions in place. You could also see if your solicitor can track down any old documentation from before the land was registered to check if there is anything else you should be aware of. 

– Gaining Access

The next thing you need to think about is how you would access the land. Does it adjoin a public highway or will you have permission to travel over someone else’s land to reach it? 

Rights of way should be disclosed in the title document which your solicitor will review and they may also recommend searches such as a Highways Authority search.

– Occupation Status

Before you consider buying agricultural land, you need to be completely clear about who occupies it. If any of it has been let to a third party, you should find out what terms exist and how long the agreement has been in place for. This should let you know whether the tenancy is covered by the Agricultural Tenancies Act (1995) or the Agricultural Holdings Act (1986).

Some agreements can have security for generations, while others will have nothing. 

If you do decide to proceed and the tenant has security of tenure, you will be required to accept the terms in full. If no agreement is in place, whether you set one up will be something you will need to negotiate with the tenant. 

– Boundary Issues

Does the legal title exactly match the plot of land you’re expecting to buy? Are all boundaries completely clear or is there some ambiguity? These are just two things you need to consider when buying agricultural land. All of this information should be given by the seller or in pre-registration deeds. 

Another element to think about when buying farmland is responsibility for maintaining the boundaries. Would it be you or a third party? Will you be required to at least contribute towards maintenance? Again, these details may be found on pre-registration deeds.

If you’re only going to be purchasing part of the land, new boundaries will be created. Your solicitor will check the transfer document which will stipulate where this is going to be, who will erect it, what type of boundary it should be, eg. stockproof, and when. The transfer will also make reference to who will maintain the boundary.

– Uses and Covenants

Are there any restrictions in place regarding how the land can be used, and how is it currently being used? Questions such as these need to be answered, especially if you’re thinking about buying farmland for development. Your solicitor will also make you aware, having reviewed the title to the farmland, of any easements which could impact you. 

– Overage

Developers have often taken advantage of the opportunity farmland offers for new development. Sellers therefore can protect themselves when selling to third parties to ensure they share in any increase in land value. This is known as an overage or clawback agreement.

The terms of such agreements should be disclosed by the seller before an offer is made, as this could affect the land’s current value. Make sure you are completely clear about these terms and exactly what you are agreeing to before going ahead. 

Overage rates typically range between 20% and 50% of any increase in land value achieved when planning permission is given. They can also last for a period of 20 to 50 years. There is no minimum or maximum term or overage rate and this should be negotiated at the point of sale.

– Rights of Way

Has right of way previously been granted to third parties? This type of permission, known as an easement, will need to be adhered to after the sale goes through. 

Easements will typically be noted on the land’s title, so your solicitor will ensure you are fully aware of what you’re signing up to. You should also find out about who has responsibility for maintaining and repairing the easement. 

– Searches and Environmental Concerns

Part of any thorough due diligence process when buying farmland, carrying out searches can clue you in on whether any easements or planning applications are in place, if coal mining was ever an issue, and flag up potential access problems.

A search will also let you know if you need to comply with environmental regulations and rules concerning asbestos or pollution control systems. 

Why Specialist Legal Advice is Essential

The right legal support is crucial when buying agricultural land. From easements and boundaries, to restrictive covenants and targeted tax benefits, there are so many elements unique to rural land and businesses which simply don’t exist anywhere else. 

We understand all the intricacies involved in agricultural law and can guide you every step of the way.

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An Agricultual Law Firm Built Around You

Thursfields has cultivated a strong reputation for excellence within the agricultural sector, from farming divorce, to the sale and purchase of farmland or rural businesses. Our solicitors have an in-depth knowledge of the industry and can therefore assist with a wide variety of queries. 

Buying agricultural land is a huge investment, so you need to be fully confident in your legal representation. We will adapt our service to match your exact requirements and ensure you are in possession of all the facts before you proceed with the purchase. 

Our status as a full service law firm also means we can assist you with broader matters than just the process of buying farmland. For example, you may want to update your will to reflect the purchase, or require advice about acquiring business premises. 

If you are planning on taking over the farming business, there will certainly be some employment regulations to be aware of and you may need to reorganise your company portfolio to factor in your new purchase. 
Whatever your requirements may be, you will benefit from our Agricultural law expertise. For more information about how Thursfields can help, get in touch with us today.

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