The value of agricultural land is hitting record highs as rich people seek loopholes to avoid inheritance tax, it is being reported.
Wealthy investors who have discovered the legal technicality are snapping up fields – and as a consequence prices are soaring to around £11,000 an acre, making life difficult for farmers. One newspaper reported on the case of a 50-year-old farmer from Gloucestershire who is in the process of selling his hundred-acre estate so he can buy a larger plot elsewhere. James Uys says he hopes to make £3m from the sale.
He claimed that land prices were soaring because of increased competition from private investors, which made it much more difficult for farmers to get hold of rural plots big enough to handle the demands of modern commercial farming.
“Professional farmers are getting priced out by people buying land because they want the IHT relief,” he said. A third of all farms sold last year were bought by private and institutional investors and not by farmers.
The rich have for many years bought farmland as a means to dodge death duties — as it can be passed on free of inheritance tax. According to official figures, the wealthy avoided putting more than a billion pounds of inheritance taxes into the public purse between 2017 and 2020 using the loophole.
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It comes at a time pressure is being put on the Government to scrap inheritance tax altogether.
Matthew Sudlow, of estate agents Strutt & Parker, said: “There have always been tax-driven buyers in the market – often with an estate worth between £2m and £5m.” But Chris Etherington, of RSM tax and consulting advisers to mid-market business leaders, said usually the buyer in question had some background in farming.
“Acquiring a farm isn’t something to be ventured into lightly and it’s rare that farmland will be purchased purely for the potential tax benefits,” he said. “Often the individuals have experience in agriculture or it’s something they have a passion for.” However, he conceded: “Their wealth and the tax benefits can influence the scale of their farming operations.”
Despite reports that some new interest in farmland has been environmentally focused, with interest from “natural capital” investors and funds, estate agents Knight Frank said in a recent document that these were “far from dominating the market and, more often than not, are being outbid by more traditional tax-driven, farmer or amenity buyers.”
Rampant inflation is another factor driving more private investors to buy agricultural land, which is traditionally seen as a safe haven during periods of economic turbulence.Mr Uys plans to use the proceeds from the sale of his farm sale to buy a larger one farther north. “I need a bigger challenge,” he told The Telegraph.
According to property experts, selling land and holding over the capital gains tax relief was now effectively the only way a farmer could afford to buy land, due to surging prices and poor returns on their investment in the land. James Stacey, a 42-year-old Essex farmer, told the paper that the gap between income and land prices meant it was now almost impossible for a traditional farmer to purchase land based on farming income alone.
The dramatic rise in prices, he said, had made it difficult for farmers to expand their acreage, unless they rented or entered a contract farm agreement. The reluctance of farmers to put their land on the market is also a factor in driving up land prices, so with supply at one of its lowest levels in decades and just 20 farms publicly marketed in the first quarter of 2023, there seems to be little sign of land prices stabilising.
“For farmers who stay in it, the land is a massive asset, which is why it’s not being sold,” Mr Uys said. Mr Sudlow said political uncertainty and Covid-19 had also encouraged farmers to sit tight, further limiting supply and driving up prices.
