Buying farmland raises a number of issues that do not apply when purchasing a residential property.

Whether or not the farm is fully operational at the time of purchase makes little difference; the key factor to remember is that it is land intended to derive an income. 

As such, it is important to know the different ways to derive profit from farmland, either through direct farming of the land or via subsidies.

Single Farm Payments

The Single Farm Payments Scheme is an agricultural subsidy paid on a per-hectare basis to landowners under the EU Common Agricultural Policy.

SFP units can be purchased for around £80 per hectare by landowners, against land that is either owned or rented, and they are tradable.

Land must be eligible to qualify for the SFP Scheme, and payments are made under entitlements.

SFP units may be sold on - a common practice among UK farmers; however, the conditions that currently apply are likely to be affected when the Common Agricultural Policy is reviewed in 2013.

VAT

Whether or not VAT applies to the purchase of farmland depends on decisions taken by the previous owner.

If they chose to 'opt to tax' the land, then tax is payable by the buyer on the purchase price at the standard rate of VAT.

However, this may not mean that the buyer is personally liable for the tax cost of the transaction - if they meet the following criteria:

a)     the land is registered as a farm by the new owner

b)     a third party is contracted to farm the land, or manage the farm

c)     the new owner receives the value from the crops

then the VAT charged on the sale can be claimed back.

However, VAT on the purchase will be absorbed by the buyer if:

• the land is rented out under a tenancy agreement
• the land is purchased and neither farmed, nor rented out

Environmental Stewardship Scheme

The Environmental Stewardship Scheme rewards landowners for using their land in a number of certain, specified ways.

It is a five-year programme which offers modest returns, but can require very little work in order to comply with the selected options.

To take part, the landowner must meet with a Natural England representative and apply for a number of preferred land uses.

For example, a 300-acre farm chooses to take the following measures:

1. protect infill trees
2. take field corners out of management and cultivation

In return, an annual payment in the region of £4,520 is received.

Returns from the Land

Of course, owning farmland offers the opportunity to derive an income from the land itself.

A recent example, based on today's prices, was a 250-acre farm used for the cultivation of winter wheat which delivered profit of £150 per acre, after costs.

The figures involved in the calculation were:

• expected yield of four tonnes per acre
• expected sale price of £140 per tonne
• expected costs of £410 per acre

This equated to £560 of income with £150 of profit per acre, across 250 acres - a combined income of £37,500.

Any Questions?

The examples above are based on specific circumstances. If you want to learn more about your own situation, call Elite Country on 01202 766566 or contact us here