Escape to the country – is land the key investment strategy?

“What between the duties expected of one during one’s lifetime, and the duties exacted from one after one’s death, land has ceased to be either a profit or a pleasure.  It gives one position, and prevents one from keeping it up.  That’s all that can be said about land.”

Lady Bracknell, Act I, ‘The Importance of Being Earnest’ by Oscar Wilde

 

In these turbulent times with economic slowdowns surfacing in economies across the globe including China, wealth planning and more importantly diversifying one’s investment portfolio is not only difficult but crucial.  So, are we seeing a general trend towards investing in agricultural land?  According to Strutt & Parker’s Market Review farmers accounted for less than half of buyers of agricultural land in 2018.  It goes on to state that this is the first time this has happened since the company started collating data in 1996.  So, what is driving this change in investment strategy, who is in this new investor class and what does it look for?

Firstly, it should be noted that the average price of agricultural land has remained relatively steady over the last few years, true it has not reached its high point of 2015 but with the average price of arable land rising by 2% in 2018, agricultural land does appear to represent a solid investment especially as a hedge to more risky investments.  Furthermore, as I mentioned earlier, the global economic slowdowns do tend to lead investors to run for ‘safe havens’ which in general are investments in tangible assets.

Who is this new breed of investor?  Broadly they fit into one of two categories: direct investor or indirect investor.  The direct investor looks to purchase a farm or farm land with a view to utilising it as part of an investment portfolio.  The indirect investor invests in one of the growing number of farming investment funds available through investment brokers.

What is this new breed of investor in agricultural land looking for?

‘In fact as far as I can make out, the poachers are the only people who make anything out of it’

Ernest, Act I, The Importance of being Earnest by Oscar Wilde

Strangely enough although the profitability of land was of grave concern to Ernest as he tried hopelessly to impress Lady Bracknell; for the new investor the profitability of the actual land is not of paramount importance.  Instead concerns over amenity, privacy and taxation take priority over profitability.

For those looking to shelter investments for future generations investing in agricultural property provides greater security than many other investments due to the generous reliefs available against both Inheritance Tax and Capital Gains Tax including Agricultural Property Relief and Business Property Relief.  In some cases, the tax liability can be reduced to zero.  In addition, as has been already remarked upon, the value of agricultural land has remained steady over the last few years.  The generous tax reliefs and the steady long term growth potential makes agricultural land a safer investment for families looking for long term strategies.

So, what about the future?  Will all farm land move out of the hands of farmers? Naturally within the farming community, Brexit and the Agricultural Bill 2019 which was published in September have caused some uncertainty.  The Bill outlines the expected policy of phasing out the subsidy system for farming over the next seven years.  It is perhaps not surprising therefore, that farmers have been reticent to further invest in farmland especially if to do involves raising finances.  Does this spell the end of the owner/farmer?  I would be reticent to answer in the affirmative.  New Zealand removed farming subsidies in 1984 since when the New Zealand agricultural community has reinvented itself to become a powerhouse on the world stage of agricultural production.

If, however, tax breaks remain the same and the current turmoil in world economies continues then we may see a greater rush of non-farmer investors into this ‘safe’ sector.

If you would like any further information on Private Wealth and Family, then contact Olivia Cooper at Meaby & Co LLP on 0207 703 5034 or ocooper@meaby.co.uk.