Farmers of STW – why is land typically £10k an acre?

Following on from the budget thread and wide discussion generally of the IHT reforms regarding farms, if the figures being quoted on social media are correct, then how is farmland so expensive?

If a business is valued at £2 million, how will an additional tax bill of £20k a year for 10 years bankrupt it?

I know margins are tight and my very limited knowledge of farming is basically watching Clarksons farm.

I don’t know of any other business sector where the yields are so poor.

It also looks very hard work.

Am I missing something?

If a business is valued at £2 million, how will an additional tax bill of £20k a year for 10 years bankrupt it?

What is the annual profit on that £2 million investment? At some point extra expenses will reduce the profitability to a level where it’s better to sell up and invest the money in something more profitable.

What is the annual profit on that £2 million investment? At some point extra expenses will reduce the profitability to a level where it’s better to sell up and invest the money in something more profitable.

I have seen claims that they turnover £250k and come out with a net profit of £20k a year.

No other business model would be viable with those figures. Especially with the graft involved in farming.

Is it? I know that’s not what the 8 acres my mum has is worth.

The average price of arable land in England rose by 4% between 2022 and 2023, with an average price paid of £11,300/acre. Over 70% of the arable land traded in England during 2023 made more than £10,000/acre.

https://rural.struttandparker.com/article/english-estates-farmland-market-review-winter-2023-24/

Good arable land might be worth that, pasture 2-5k.

If a business makes 20k profit a year and then pays an extra 20k in tax that business is no longer viable, innit.

I have seen claims that they turnover £250k and come out with a net profit of £20k a year

After wages/dividends are paid to the Director(s)? Sounds pretty good if so.

If a business makes 20k profit a year and then pays an extra 20k in tax that business is no longer viable, innit.

I’d say it’s solvent, but not in profit. Either way, if people are all getting paid, then it’s OK.

I think part of this IHT scheme is to reduce the value of farm land.

Push out the investors who only farm a third of the land they own so ‘proper farmers’ can buy it more cheaply.

And don’t forget if a farm has truly been passed down from generation to generation they haven’t paid £2m for it. That’s just the book value if they were to sell.

I have seen claims that they turnover £250k and come out with a net profit of £20k a year.

Sounds jolly Tax Efficient ?. I’m sure absolutely no creative accounting takes place to reduce profits as much as possible takes place.

‘I have seen claims that they turnover £250k and come out with a net profit of £20k a year.

No other business model would be viable with those figures. Especially with the graft involved in farming.’

Bad news – a lot of businesses are run with horrible margins. Why do you think the hospitality sector is always whining?  Farming is a LOT of graft though ( I grew up on one)

Its not, it all depends on the land quality, location etc etc. Read this (Scotland) which discusses land quality grades https://www.cairngorms.co.uk/resource/docs/publications/BallaterH1_50.pdf

So, land value…. round here (Fife, Scotland), land is normally £3-4k per acre, thats grade 3:1 or grade 3:2.

Better classification, then price goes up. The only time ive seen land go for (agricultural use) is for market garden uses – and it went for £12k per acre. (Market garden – growing vegertables – this is near me https://www.kettle.co.uk/ )

I have a remote (to me) 25.6 acre field, which borders anothers farm, and id probably be able to get about £100k for it (its grade 3:2)

Ive also bought ‘restored land’, as in a sand and gravel pit have extracted the gravel and it was restored back (topsoil put back). It was £1.5k per acre.

Price is also dependant on ‘the books’, what can you do with the land that you have. Farmhouse and buildings also add to the price of the overall farm obviously.

Caveats. Add in externals such as the land is close to villages, or good for plots and ripe for development, price shoots up. Someones desperate to buy it, price shoots up. Prime location, price shoots up etc etc.

Im not a multigenerational farmer, i bought mine. However the multigenerational types, they make a living, but a 3rd/4th generational farmer wont be paying for mortgages for house etc. Thats all generally been paid for by the grandfathers (of the other farmers i know). So they get by.

However, as i said on the Budget thread. Its easy to get round the new IHT – especially for farming families. The dad needs to hand over the riens in a timely manner and not leave it last minute.com (lives 7 years). Or uses tax efficient gifts/trusts etc to transfer the farm to the sons/daughters.

I have seen claims that they turnover £250k and come out with a net profit of £20k a year.

No other business model would be viable with those figures. Especially with the graft involved in farming.

I dunno, my work, retail, are delighted if they deliver a 10% profit on the turnover. I think every farm will be different and I don’t know how the figures are reached, does your £2million include the farmhouse, equipment animals, land etc. Does your £20k profit include or exclude the farmers salary. My impression is farmers may be asset rich but cash poor so finding £20k (giving up your profit) may mean not upgrading the combine/milking parlour etc. not sure how many business would be happy with this.

As far as I’m aware, the name of the game in a small business is to return a minimal ‘profit’ whilst making sure that everyone gets as much as they can out of the business. Have you seen the price of tractors? Have you seen many old ones (not vintage, just y’know, old knackers) about? There’s a reason for that. (Although with all the emissions rules on the new ones, several farmers I know are sorely missing their mid nineties era machinery. Mostly all sent overseas now).

A big reason that land is relatively expensive is it is (was? Too soon to tell) a great place for wealthy people to store their wealth. Like gold, fine art, etc, there’s a finite supply of it, and it comes with some nifty tax breaks. Still does, despite the bleating of Clarkson et al.

I dunno, my work, retail, are delighted if they deliver a 10% profit on the turnover.

I have never heard of a successful retail business that makes 10% profit on it’s turnover?

M&S do about 30% after tax and at the other end of the spectrum our small shop does similar. We also take small salaries as well.

No other business model would be viable with those figures. Especially with the graft involved in farming.’

Bad news – a lot of businesses are run with horrible margins. Why do you think the hospitality sector is always whining? Farming is a LOT of graft though ( I grew up on one)

Nobody would value a hospitably business at £2 million with those sort of figures.

One point that everyone seems to be missing is that the valuation of agricultural land for IHT purposes is the purely agricultural value, not the commercial value if it was speculatively sold off with the hope of building a housing estate on it. The underlying assumption is a covenant preventing any change of use and the valuation is made on the basis of the profit the farm is making.

If the land really isn’t bringing in much profit in farming, it won’t be valued highly and there won’t be significant tax to pay.

(This point can be checked in a few seconds googling, though I know that facts are generally unwelcome with many posters.)

I have never heard of a successful retail business that makes 10% profit on it’s turnover?

M&S do about 30% after tax and at the other end of the spectrum our small shop does similar.

I think we may be talking about different numbers and I am no accountant, so net profit, gross profit, margin etc are not my strong point. A quick google says M+S food is 4.8% and clothing is 10.3%, Tescos is about 2.7%,  B+Q is 3.6%, kingfisher who own B+Q is 8.7%,

If the land really isn’t bringing in much profit in farming, it won’t be valued highly and there won’t be significant tax to pay.

I’m absolutely sure this is true; and if anything it makes it a better bet for wealthy individuals looking to avoid IHT. A stable value that will only go up and special treatment under IHT rules. Actual value per acre is irrelevant.

the business isn’t worth £2mm but the land may be. Its the same as a btl property – you get some cash in each month but the value of the asset is also increasing and thats where a lot of the value is.

if you’re anywhere near a large population centre the value of the land to horsey people also goes way up. this is an example near us

https://www.rightmove.co.uk/properties/145071884#/?channel=COM_BUY

£45k per acre

Remember, one of the conditions for IHT to apply is that you have to be dead.

So hand over the trading farm to family, retire and survive for a while and there’s no liability.

Or declare your farm to be a heritage asset and your estate’s disposal of the asset becomes exempt.

Or don’t make a profit and it has a minimal value… Etc

Buy land – they don’t make it any more.

After wages/dividends are paid to the Director(s)?

Dividends can only be drawn on post tax profits. So the profit is not what left after dividends, it’s the only place dividends can come from, after tax.

If the land really isn’t bringing in much profit in farming, it won’t be valued highly and there won’t be significant tax to pay

Indeed – if the value of agricultural land is way higher than it should be given the return you can make on it, that suggests there is another reason people are buying agricultural land.  Such as to avoid IHT

If this a) leads to the value of agricultural land falling, and b) fewer rich hobby farmers that seems like a good thing.

If the worry is ‘food security’ we don’t really want land owned by people who either don’t run it efficiently/profitably either because (Clarkson, that guy from blur, countless other retired pop starts etc) it’s a toy that avoid IHT or they’re just bad farmers  we want it owned by people who are going to farm it efficiently/effectively/productively

we don’t really want land owned by people who either don’t run it efficiently/profitably either because (Clarkson, that guy from blur, countless other retired pop starts etc) it’s a toy that avoid IHT or they’re just bad farmers  we want it owned by people who are going to farm it efficiently/effectively/productively

My one main takeaway from watching Clarkson’s farming program, which reinforced what I’ve been told by friends who have worked in various aspects of agriculture, is that it is really hard to make it productive and profitable regardless how efficient you try to be.

Millionaires using farms as tax havens are the biggest threat to our food supply

Someone else having the same thoughts as me.

if you can’t make money does that mean our food should be more expensive? Or should we have larger more industrial farms that are more efficient and give us cheap food.

there seems to be a real disconnect between the idyllic rural ideal (small family farm’s producing artisanal organic produce) – and what people actually want/are willing to buy (cheap takeaway food and a £3 chicken).  Which requires large scale  industrial farm’s.

Agricultural land is c 10k per acre, any sniff of a chance of planning permission for houses and its 10x that plus.  There’s a field behind me that the builder has tried every trick in the book to get planning for houses on, I suspect it goes on everywhere as the rewards make it worth it.

Buy land – they don’t make it any more.

Study Geology… they do!

Not a Farmer, married to a Farmers daughter, surrounded by them. The cost of land remains high because this increases the value of the Farmers asset which in turn allows the Farmer to leverage more debt (cash) Banks lend freely against fixed assets. In simple terms Farmer A has 100 acres that was historically bought for £100,000 pounds that asset value becomes £1m pounds so asking for a loan of £200,000 is no big ask. Lots of other things help them including being VAT recovery positive I.e they don’t charge VAT but reclaim 20% of just about everything that comes through the Farm Gate. When they say they only made a profit of £100k that’s net profit not gross. They used to get a subsidy back in the good old days which was typically a good salary on its own. Now some stuff that’s not commonly known, council tax reduction by one or two classes on the Farm House, grants for lots of stuff including fencing, hedgeing, hardstanding, trees. I personally know dozens of farming families…. non are even remotely poor, many work hard but then other people work hard. They do have a view that because they produce food they are “special” however shipbuilding, steel production and many other historical industries were not special apparently. It’s a bit of a Ponzi scheme.

coconut
Free Member
Buy land – they don’t make it any more.

Study Geology… they do!

In the UK we are losing it though, it’s a diminishing resource, particularly so I’m the South and the East.

Sucks to own these beautiful places right now. From the Beeb yesterday:

@gobuchul

Nobody would value a hospitably business at £2 million with those sort of figures.

Most supermarkets work on a 2.5-5% net profit margin. They gross profit maybe 30%/40% but that’s entirely different.

My own small business works on a 0% net profit, I reinvest any profit gained and don’t give it to share holders.