Farmland has always been considered to be one of the best investments that can be made. This is because we obviously all need to eat and the production of almost all food can be traced back to farmland across the world. Demand is growing for farmland as the world’s population soars – although the problem is that the supply is not increasing – hence creating a massive shortage and boosting of demand.
It’s widely believed that an investment in farmland will ensure a regular stream of income as well as good capital gains over the long-term. This is largely thanks to the popularity of agricultural commodities. There’s also increased demand for ethanol and biofuel, outpacing supply and putting farmland into a position where it can only gain in price. It’s predicted that there are about £3.5 billion acres of arable land in the world and that farmland can generate regular returns of four-six percent, depending on the location and the crop.
Here in the UK, the average value of prime arable farmland strengthened by 2.3 percent to just a bit more than £8,500 per acre in 2013. Over the last decade, there was a 273 percent increase in average arable farmland, with The Royal Institute of Chartered Surveyors putting the booming price down to food speculation, lifestyle farmers, tax benefits and foreign buyers purchasing UK land.
What’s interesting is that farmland is also an asset that appeals to investors across the board, from those who cannot afford to buy a whole farm, but have money to invest in a fund, to those who are looking to expand on their own holdings. There are also first-time land buyers. On top of this, there are corporations, pension funds and institutions, all looking to invest in land – and let’s not forget the rise of the hobby farmer. There are many people searching for the good life, looking to live a simpler, bucolic lifestyle as they get older. Land also has the added advantage that it’s a real asset – you can live on it, raise your family on it and farm it. Highly diverse!
If you purchase farmland, you can pass it on without paying inheritance tax, as long as it’s a working farm. Agricultural land and buildings can get valuable relief from Capital Gains Tax too. However, it’s good to be aware that the tax treatment of woodlands and agricultural property is treated rather differently by the taxman. For example, trees are exempt from CGT and IHT, although the land is not. Best to consult an expert for advice.
Farmland values are expected to increase by some 30-40 percent over the next five years. Estate agents have reported a backlog of cash just waiting to be invested in agricultural property. This is a trend that reflects the Prime Central London residential market, which is regarded as a safe haven for cash. Both farmland and London property have substantially outperformed national average house prices in recent years.
Image obtained from http://hdrcreme.com/photos/43584-Farmland-Denmark