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With our head office based in rural Rutland, many of our clients are from farming and agricultural backgrounds. With an increasing trend for farmers’ children and grandchildren to walk away from this age-old profession, a huge proportion of our clients are now asking ‘What can I do once I have sold the farm’?
The farming life is one of hard work, dedication and often uncertainty. But if you love this lifestyle, the hard work and long hours fall away into insignificance, because you are surrounded by your passion and can often reap a life of privilege from what you sow. However, farming is not the life for everyone, so, more than ever, the concept of the ‘family farm’, passed down from generation to generation, is falling by the wayside. This ultimately brings the dilemma of what to do with the land as one farming generation looks to retire and another looks to plough their own furrow in an entirely different field.
Land has been one of the best investments you could have held over the last 10 years. As we all know, they aren’t making any more of it! Technology does have a funny way of changing things like that though, and could easily reverse the upward trend just as quickly, as can politics and world economics. The yield (income) from holding land is poor and, unlike more liquid assets, it is difficult to sell 1 acre per month or per year to generate a liveable income. Not to mention the Inheritance Tax (IHT) benefits of holding land; after all, with careful planning you can keep the land to qualify for Agricultural Property Relief, so you should be able to pass it tax-free to your loved ones.
As a farmer’s son who runs a financial planning business, I regularly get asked how best to deal with this dilemma. After all, as I am not farming, this is an issue that is very much ‘close to home’ for me. I approach this issue in the same way for my clients as I have done for me and my family.
The first thing to ask yourself is, ‘what are you looking for from the asset?’ If you have more money than you and your family will need for the next 20, 30 or however many years, then keeping land is probably a good thing. The income it generates is poor, but for passing the money down through the generations it works very nicely. However, if you would like to be able to generate a greater income from this asset, keeping the land makes less sense.
If, like many people, you not only want a greater income, but you want to be able to help out your children and grandchildren with buying houses, paying for education or setting up a business in a sector outside of farming, then maybe selling the land is a better idea. So what should you do with the money once you have sold the land?
The first thing to do is to seek sound advice, from someone who understands your situation; not only that, but ensure the money is invested wisely. Building a diverse portfolio of assets so you aren’t ‘putting all your eggs in one basket’, at a level of risk that you are comfortable with, is vital. To stick with the farming analogies, we all know that if you only farm pigs, you get hammered by the ‘Pork Cycle’. But if you also have a milking herd, some arable, and maybe even some turkeys too, you are more likely to ride out the storms ahead and generate a living throughout the year. Investing is no different. The trick is getting the right amount of each asset to generate you the right level of income or growth, without taking any more risk than is necessary. Just make sure you stay away from unregulated, obscure investments that sound too good to be true. They usually are.
There are also many ways in which you can keep that capital out of the hands of Her Majesty’s Revenue & Customs. But this is not the time to be using aggressive style tax planning, or handing it all over to your children immediately for it to be lost in divorce settlements. Understanding how a sensible approach using Trusts, Family Investment Companies and other assets that qualify for Business Property Relief can keep your capital protected, provide you with an income and also shelter it from Inheritance Tax in the future.
The value of the land really can make a huge difference to many generations of your family ahead of you, but only if it is managed wisely, so I hope you take considered action whatever you do, and you continue to reap what you have sown!
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