Selling your land for development? Alternative ways to generate reliable income
Michael Brough and Tom Smallbone explore how farmers can generate more income from their land – without selling up.
The farming landscape across the UK has changed dramatically in recent years. Political shifts, including the country’s departure from the EU, have left many farmers facing reduced financial support, particularly with the phasing out of the Basic Payment Scheme (BPS). At the same time, increased costs are piling the pressure on how to make their land generate a return.
For many, the growing challenges of farming are making the prospect of selling land for development an appealing option. The problem is that income from land disposal may take several years to materialise and, when it does, will attract a considerable Capital Gains Tax (CGT) liability.
Fortunately, there are other options that make it possible for landowners to generate a secure annual income, while also protecting the ongoing family ownership of land.
The answer does not have to be just selling land for development
“The farming community across the UK is facing unprecedented challenges,” said Brough. “The phasing out of EU subsidies in particular is already having a tangible effect on profit margins, leading the farming community nationwide to seriously contemplate what is next. The government’s roll out of ELMS is inconsistent and confusing, and in a statement the NFU argues livestock farmers will have lost up to 80% of their income by 2024 under the current plans.
“This leaves many farmers faced with a stark reality. When subsidy represents an average of 58% of profits farming is no longer the most viable way of utilising their land.”
At the same time the unfolding national housing crisis has led to an enormous rise in the demand for land. Therefore, many are now looking for ways to raise funds through a land sale.
A quick online search on how to sell land for property development provides advise and plenty of companies they can work with. But, dig a little deeper, and promoter fees of 20% and a CGT of 40% quickly reduce the viability of a quick disposal.
Brough continues: “Selling land does not have to be the only way. There are other more prudent options available to farmer-landowners, especially for land that isn’t creating as much value from agricultural activity. These can help them turn land holdings into commercial ventures with a secure income for many years. And ensure that overall ownership is retained.”
A experienced partner to guide the way
For many landowners, the world of property development is largely unfamiliar. So, while the idea of making land available for development can be tempting, having a specialist to guide the way can be invaluable.
Smallbone said: “As an experienced and independent land specialist we look at the bigger picture. We take into account current planning and future allocations of land as well as demand patterns across a locality, region and the country overall. Our difference is the clear focus on working with landowners to maximise long term income from their land – and that could mean different things to different people.”
If development is thought to be the best way forward, there are an infinite number of potential options and personal preferences to consider and build into a proposal.
For instance, large plots of land close to established residential communities could hold the potential to generate substantial income. By keeping hold of the freehold and leasing parcels of land for development, landowners can secure an income from their land and even benefit from ground rent and taxation reductions for years to come. Aside from housing development, there could be commercial land opportunities too.
Maximising the value of farming land
The Godwin Developments land team have many years of experience in advising farmers. They also work directly with leading housebuilders and international brands and are familiar with their land requirements across the UK.
Smallbone said: “Our focus is to maximise the overall value of the development – both in terms of land value and ongoing rental returns. That means knowing what’s driving demand in a particular area, working with the businesses that require land and with all parties to deliver shared benefit.
“For landowners in particular, knowing they have somebody on their side to navigate the world of property development is of crucial importance. It can make a huge difference in selecting the most profitable way forward for their land. And to ease the process, we even fund all the initial investment required for development, such as surveys, reports and obtaining planning permission.”
A more secure financial future
For farmers, land has been in their family for generations – and selling up is understandably a difficult decision. But a reticence to sell doesn’t rule out the option of development, which can ensure a profitable future from their land.
Brough says: “With larger, more strategic plots, we are able to create a programme that is delivered over several phases. This approach releases income to the landowner more quickly as each stage is delivered and occupied. Naturally, this increases the value of the remaining site while also managing the tax bill for landowners.”
This is because, currently, land held for a business purpose – such as a development – is usually exempt from inheritance tax. While speculation is building around the tax reforms arising from the Covid-19 pandemic, some are suggesting the government may seek to encourage land letting for long-term tenancies which could attract a bigger tax-free allowance.
Brough continues: “We have the in-house experience of working with farmers and landowners and have access to some of the leading experts in property and land taxation. We can help farmers understand the lifetime tax implications of any land decision – not just the cashflow of today.
“What is crucial though in the first instance is to meet, have a frank discussion and a true understanding of what landowners really seek from their land. Ultimately, land is a very valuable asset – and it is our job to ensure it truly works for the benefit of the landowner for years to come.”