The appetite for buying land of all descriptions remains keen and grazing land is enjoying high levels of interest. Prices are robust, bolstered by a lack of supply to the market. Areas of grazing land range from high quality blocks of pastureland to farms and can vary in quality: agricultural land is classified using the Agricultural Land Classification (ALC) system which assesses land quality from 1-5 according to its characteristics, with grade 1 land being the highest quality.
Whilst land is traditionally considered to be a safe investment despite its relatively low returns on capital, it is now appealing to investors interested in the natural capital and renewable energy opportunities it may offer in addition to its traditional uses. Farmers are also still actively buying land. Added to this the fact that all types of land ownership can have tax benefits, and the attraction of buying land is clear.
When evaluating grazing land for sale consider the following:
- Is the land type suitable for its intended use?
- Road frontage or access issues.
- Water availability.
- Soil quality.
- Tenure: preferably the land is sold freehold with vacant possession.
- Third party rights over the land including rights of way, wayleaves and easements.
- Entitlements which may be included with the sale and any existing agri-environmental schemes on the land.
- An environmental report to ascertain whether the land is in a flood zone or has other environmental issues (such as contamination or infill of ponds).
- The condition of hedges and fencing if the land needs to be stockproof.
- Whether sporting, timber and mineral rights are included in the sale.
- Whether any other surveys are necessary, e.g., bat surveys for pre-existing buildings or trees subject to the extent and potential longer-term use/opportunities for the land.
- Future development possibilities such as infill planning consent, subject to planning permission.
- Any clauses relating to future development which may give the seller a percentage of any uplift in the land value due to gaining planning consent.
- Potential for leisure and recreational opportunities.
Opportunities from Land Ownership
With predictions of global population growth reaching nine billion by 2040, ever increasing demands are being placed on land. The current focus on renewable energy production has led to higher prices for lower grade land offering opportunities for developing wind farms, hydroelectric schemes, solar farms, or growing biomass crops.
Interest is likely to increase from small investors and major industries needing to offset their carbon footprint by taking up biodiversity net gain opportunities. Buyers will also be attracted by natural capital-based schemes such as carbon sequestration.
For existing livestock farmers wishing to expand the size of their farming operation, the opportunity to acquire additional grazing land can provide the key to expansion. The land will need to be close to their main homestead to make managing animals convenient. Such land may rarely become available, therefore relevant grazing land for sale may command a premium.
For others, the decision to acquire land may be taken to boost a diverse investment portfolio, possibly for taxation advantages. Providing that the land is a good investment, such purchasers potentially have a wider geographical area to choose from as the intention would be for them to let the land out on either a tenancy or a grazing licence.
For hobby farmers and horse owners, the proximity of the grazing land to where they live is more relevant to allow them to enjoy their pursuit. Access, water, shelter, security and the availability of electricity are all factors to be considered and may influence the price for a small acreage.
According to research by Savills in July 2021, overall average agricultural land value increased by 1.7% during the last six months to £6,875 an acre.
Knight Frank’s Farmland Index, Q2 2021, revealed that the average value of farmland in England and Wales reached £7,000 an acre for the first time since 2019 as bare land prices rose by 2%. The agent predicts prices to rise during the remainder of 2021.
Farmers are looking to buy land due to strong arable and livestock commodity prices and because lenders are keen to lend to the agricultural sector at low rates. Land prices are expected to increase over the next 12 months, due to lack of supply and high demand from a range of purchasers including environmental buyers, those interested in regenerative agriculture, others drawn by the potential to earn carbon credits from farmland and returns from solar energy schemes.
For those attracted to buy grazing land, the potential reliefs given from capital taxation on both chargeable lifetime gifts and inheritances on death should be considered. For Capital Gains Tax the mitigation of lifetime disposals via holdover relief, rollover relief or the recently named Business Asset Disposal Relief (previously known as Entrepreneurs Relief) are important as they provide the opportunity to calculate the competing fiscal claims of making a lifetime gift rather than gifting on death, by which time taxation may be less favourable than at present.
For Inheritance Tax purposes, owning or managing farmland used for grazing may provide Agricultural Property Relief (APR) of 100% provided it has been occupied by the owner for agricultural purposes for two years or owned for at least seven years prior to death and throughout that period has been occupied by another for agricultural purposes.
Even letting out pastureland on a formal tenancy may provide such relief. It is worth noting that grazing horses used for recreational riding is not regarded as agriculture and therefore those falling within this category are unlikely to be able to claim. As part of succession planning for families committed to farming, both APR and Business Property Relief which focuses on the other assets of a farmer’s business, are essential considerations.
The Potential Outlook for Land
Land values have almost doubled in the last decade, a time of generous farm subsidies, however, the outlook may change dramatically as the subsidy system is repurposed. Much depends on the implications of replacing the Basic Payment Scheme (BPS) with the Environmental Land Management (ELM) scheme which are still to be assessed.
As well as long term capital growth, landowners may anticipate medium term incomes from good quality productive land and more marginal land could present opportunities from a natural capital and biodiversity net gain perspective. The varied opportunities presented by farmland today, along with the level of demand, indicate that prices will only go upwards for quality grazing land for sale.