After several challenging years for agricultural profitability, many farmers and landowners are reviewing whether to continue farming in hand or let some or all of their land.
Volatile crop yields, fluctuating commodity prices, high input costs and significant machinery investment have placed pressure on margins and working capital. Succession is also influencing decisions, particularly where there is no clear next generation wishing to take on the farming business.
At the same time, strong competition for good quality agricultural land has resulted in attractive rental offers in some areas. While some landowners are considering letting farmland to secure a more predictable income, established farming businesses may see the land becoming available as an opportunity to expand and use their existing resources more efficiently.
At Newton LDP, we advise clients on both sides of this process. Our Rural team comes from farming backgrounds, so we understand the practical and personal considerations that sit alongside the figures.
“Deciding whether to continue farming in hand or let land is rarely a purely financial decision. Having been actively involved in a 1,000-acre arable and root farming business since 1998, I understand how significant and sometimes worrying that change can be for the individuals and families involved.”
William Young, Director of Rural at Newton LDP
When might letting agricultural land be appropriate?
For some landowners, letting agricultural land can provide a more predictable income while reducing the financial and operational demands of farming in hand.
It may be particularly relevant for owners who wish to step back from day to day farming, avoid further investment in machinery and infrastructure, release capital for other purposes or prepare for retirement and succession.
However, the highest rental offer will not necessarily produce the best overall outcome. The proposed tenant and the terms of any Farm Business Tenancy are equally important. Landowners need to consider how the land will be managed, the length of the tenancy, responsibility for repairs and improvements and how easily possession can be recovered.
Future development, diversification and environmental opportunities should also be considered before an agreement is completed. A tenancy that does not reflect the owner’s longer-term plans could restrict the ability to respond to an opportunity later.
Why might farming in hand remain the right option?
For efficient and well-funded businesses with a clear succession plan, continuing to farm in hand may still provide the strongest long-term outcome.
It allows the landowner to retain control over cropping, land management and future opportunities, while benefiting directly from any improvement in agricultural profitability. Environmental schemes may provide an additional source of income and help reduce some of the risks involved.
Businesses with available capacity may also be able to take on additional land and make better use of existing labour and machinery. Before expanding, they should understand their true costs of production and test whether the proposed rent remains affordable under realistic assumptions. Greater scale can improve efficiency, but only where the expansion is properly funded and commercially sustainable.
Taxation and development potential
Inheritance Tax (IHT) is an important consideration when deciding between farming in hand and letting agricultural land.
Letting agricultural land does not usually prevent it from qualifying for Agricultural Property Relief, provided the relevant conditions are satisfied and the tenancy is structured correctly. However, moving from an active trading business to receiving rental income may affect the availability of Business Property Relief and the treatment of any value beyond the agricultural value of the land and property.
One aspect to consider is the farmhouse, as this is unlikely to qualify for any IHT relief if unless it is occupied by a farmer who is managing the farmland either in-hand or via a contract farm agreement.
Capital Gains Tax implications should also be considered where land has residential or commercial development potential, or if a future sale is being considered. How the land is occupied could affect the tax position and the ability to obtain vacant possession when required.
The implications will depend on the ownership, occupation and structure of the individual business. Legal and tax advice should therefore be obtained before making any significant change.
Could contract farming offer a better alternative?
The choice does not have to be between farming the entire holding in hand and letting all of it through a Farm Business Tenancy.
For some businesses, the most appropriate solution will be a combination. Reviewing the holding on a field-by-field basis can identify where resources should be concentrated, where letting farmland could provide greater certainty and where control should be retained because of future plans for the land.
Contract farming, share farming and other arrangements may allow an owner to remain involved while changing how responsibilities and financial risks are shared. A hybrid structure could reduce labour, machinery and working capital commitments while allowing the landowner to continue farming a core area efficiently.
Any arrangement must be properly documented and reflect how the parties operate in practice.
How Newton LDP can help
Understanding whether farming in hand, a Farm Business Tenancy or a contract farming arrangement is most appropriate requires more than comparing recent profits with the rent currently being offered.
Newton LDP can undertake an independent review of the farming business. Our Rural team can assess current and forecasted in-hand returns, potential rental income, working capital requirements and future investment needs. We also consider succession, development potential and how much control the owners wish to retain.
This provides the evidence and commercial perspective needed to identify a structure that supports the owners’ financial position and longer-term objectives.
Where letting agricultural land is appropriate, we can manage the process from initial appraisal through to implementation. This includes assessing rental value, advising on the structure of the Farm Business Tenancy, preparing the land for the market, evaluating prospective tenants and negotiating the commercial terms.
We also work alongside the client’s accountant, solicitor and tax adviser to ensure that the property arrangement supports the wider business, legal and succession strategy.
If you are questioning whether farming in hand remains the right option for your business, speak to William Young in Newton LDP’s Rural & Agribusiness team for a confidential initial discussion. We can help you explore the options objectively before you make any significant decisions.
Will Young - Director, Rural
will.young@newtonldp.com
07721 260552