As scrutiny of the likely settlement for UK Farming plc intensifies, our
Rural Business & Estates team is looking beyond Brexit to identify strategic opportunities for landowners. The phasing out of direct subsidy from 2021 to 2028 will have a profound effect on the economics of running many land-based businesses. The key is to look now at finance, business structures, potential diversification and collaboration.
Access to capital
Long-term mortgage finance, secured on agricultural land, is still available at historically low rates. The value of that security is holding: there is still a market demand for good agricultural land. There appears to be an obvious and narrow window to secure such finance before any market turbulence in March 2019 or before interest rates rise substantially.
Medium-term, the Agriculture Bill provides for “delinking” direct payments from the requirement to farm land from 2021 to 2027. In DEFRA’s own words, “These payments, which may be calculated according to money received in previous years, can be used by farmers to invest in their businesses, diversify their activities or else retire from farming and give way for new people to enter.” DEFRA have also proposed that rather than annual payments a one-off, lump-sum payment be made available.
The market for land
Phasing out direct payments will likely bring more land to the market, in particular the open market. That may depress prices for all but prime arable land, but it will provide opportunities for the acquisition of land, whether to expand landholdings for farming or diversification, or to take a strategic view as to development potential.
UK Farming plc is culturally conservative, in the typical legal structures (sole traders, unincorporated partnerships) and in the typical business models (usually based on one landholding and one family unit).
We see real opportunities and economies in collaboration between neighbouring landowners sharing plant, labour, capital and land. Shared plant and labour is already common, but sharing capital and land will, for the majority, be a cultural change. A larger and more diverse landholding will support more businesses. Scaling-up may also increase opportunities to supply public goods under the proposed Environmental Land Management Scheme (ELMS).
The legal structures and tax treatment will require careful consideration in each case, but the capital tax regime remains favourable to such collaborations.
Public benefit for public goods
The government’s “Health & Harmony” policy statement gives broad, but clear examples of public goods which will attract payments under ELMS. The obvious dilemma is when to take steps to anticipate that scheme.
Permissive public access may be an easy answer: initial capital costs may be low compared with restoring heritage, planting woodland or works to watercourses; the compliance costs are likely to be an increased insurance premium and ensuring that a deposit under the Highways Act 1980 and Commons Act 2006 is lodged with the county council.
Our Rural Business & Estates team offers specialist advice for all the needs of farm and estate owners, whether they are business or personal. There may be difficult choices ahead, but there are also plenty of opportunities – and we are ready and able to help you realise them.
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With rural businesses facing great uncertainty due to Brexit, we've teamed up with the CLA and Gary Verity of Welcome to Yorkshire to look at the risks and opportunities that are on the horizon. Download our report for thoughts on diversification, technology, succession planning and more.
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Published: 21 November 2018
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