Retirement in farming can be a tricky decision at the best of times. There are strong inheritance tax reasons to continue farming which often control decision making and result in generations farming together. Farmer’s Weekly recently did an article covering farmland sale and leaseback deals as an option for retirement.
The Farm Business Tenancy
Many of these deals are done off the market and see a seller remaining in occupation under a Farm Business Tenancy. The logic is that you have capital to invest in other things while staying as a tenant. There is particular interest in farms where there is potential for uplift in value, perhaps from housing or renewable energy.
This type of deal would allow farmers to continue farming but with financial backing with non-farming investors interested in a steady return and potential for long-term uplift in value. This is an interesting proposal as the taxation implications can include capital gains tax (CGT), with no entrepreneur’s relief available as the farming business continues, as well as loss of potential inheritance tax relief being lost. There are also income tax advantages to farming land yourself. For investors there may be inheritance tax advantages after a qualifying period but really land offers a very poor return on investment when you consider agricultural rents compared to land values.
Terms of the deal
Ultimately the success of this type of deal depends on how well negotiations progress as well as well the flexibility of the parties involved. The objectives of the investor and seller will dictate the terms of any deal and should be the starting point for all parties.
Whilst there may be advantages to this type of deal the above starts to discuss how important it is to take multi-disciplinary advice from an early stage. This should involve , a planning consultant to check any potential uplifts in value attributable to planning opportunities, your solicitor to advise on the legalities of any proposals and agreements after the transactions and your accountant/tax advisor to check the tax implications.
Contact us today
We, at G Herbert Banks, work with accountants, tax advisors and solicitors in land transactions to make sure all issues are covered as seamlessly as possible from start to finish. If you have land which you are considering selling, or buying, please do contact the team and we would be delighted to discuss the options available.