The sale of a farm may be the first time in generations – even centuries – that land has been sold. Wendy Short seeks some expert advice to maximise the value of this crucial asset
How do I get started?
Anyone thinking about the possible sale of their farm should first define their objectives, advises Savills director, Andrew Black. Ideally, write down a list of priorities, as well as a proposed time scale. Consider whether you want to sell the farm as a whole, or split into lots, possibly retaining the house and/or a parcel of land.
What about timing?
It usually takes four to six months to sell a farm. May to mid-July is the time when most properties come on to the market.
If you have pedigree livestock that also have to be sold, consideration should be given to the seasonal nature of breeding stock sales, if the best prices are to be realised.
If emigration is the reason for the sale, the length of time it takes to obtain a visa should not be underestimated – it can take two years or more for permits to be granted.
Is it a good idea to look into development, to increase my farm’s sale value?
Obtaining planning permission to develop a farm building can greatly increase sale profits. This can be particularly important in cases involving a partnership split, where there might be a requirement to raise a specified sum of money.
If successful, this should increase the property’s value and provide sufficient equity for both partners to relocate, but Mr Black issues a word of warning.
“A barn with development potential might be worth £250,000, but the finished building can affect the value of the rest of the farm, especially if it is close to the main farmhouse. Traditionally, buyers of farms are looking for land within a ring fence, with privacy being one of their main requirements.”
How can I make sure I don’t miss out on development opportunities in the future?
It makes sense to retain a plot with development potential, such as a field or building within a village boundary, but only as long as it does not seriously reduce the farm’s overall value.
Vendors could also consider attaching a clawback clause to the farm sale. This entitles the seller to a percentage of any future development value within a set period of time. However, clawback options can be unpopular with buyers, says Mr Black.
Should I sell my current property, before putting in a bid on a larger acreage?
Wherever possible, purchasers should sell their property before putting in a bid for another farm. Despite falling house prices, land prices have remained strong, mainly because demand is outstripping supply. It can be difficult for purchasers with unsold property to compete in the marketplace, due to the high number of cash buyers. But there is a risk, particularly in a rising market, of selling and then not being able to afford a replacement farm. Selling first can also cause major disruption to the farming business.
What are the tax implications?
There is potential liability to Capital Gains Tax, as well as implications for Inheritance Tax. It is best to seek an accountant’s advice at an early stage, as every farm situation will be different.
The tax regime was also drastically altered this year with the removal of business asset taper relief and indexation allowance.
If considering part disposal, sellers need to look into the effect this may have on future liability to Inheritance Tax.
How do I select an agent?
The lack of available land has forced many prospective buyers to widen their search for farm properties. If you choose a local firm, find out which geographical area they plan to target for marketing purposes. There is a national market, even for small farms. Ask questions, to make sure the agent has good local knowledge.
The most effective agents will have comprehensive websites that allow browsers to access details and photographs of the properties on offer. Agents’ websites can also be used to determine the companies with a portfolio of properties that most closely resemble the farm you intend to sell.
How much are agents’ fees?
Agents normally charge 1.5-2% of the sale price. Marketing costs are extra – typically £2000-£5000 for an average farm – and should be agreed at the outset.
Ask agents to explain how they arrived at their valuation. Steer clear of firms if you suspect they have over-valued your property to secure your custom.
Which method of sale do I choose?
Vendors have three options:
Auctions can be effective, if the market is strong and a quick sale is needed. But a property that fails to meet the reserve might be difficult to sell afterwards.
- Private treaty
Private treaty is the most popular option, offering the vendor the greatest flexibility and control over the sale.
The deal can be closed by negotiation or best offer, depending on the level of buyer competition.
- Formal tender
Formal tender is rarely used, as it tends to be less attractive to potential buyers. Interested parties send the agent their best offer, together with a cheque amounting to a 10% deposit, which is cashed if the bid is accepted.
Guide to government regulations (planning permission, building and land development and taxation)
Royal Institution of Chartered Surveyors
The Central Association of Agricultural Valuers
Her Majesty’s Revenue and Customs
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