Farmers are adaptable
Farmers are an adaptable bunch as has been evidenced by the plethora of new business ideas which have sprung up in recent years as more look to diversification.
Using agricultural land and properties for other uses to provide alternative income streams is widely acknowledged as a rational response to the changing UK economy.
According to the latest available Government figures, last year 56 per cent of farm businesses in England had some diversified activity – an increase of three per cent on 2011/12.
Bed and breakfast accommodation offers a foray into the world of tourism for many, while others may go into retail with the opening of farm shops and tea rooms.
But the main diversified activity is letting out buildings for non-agricultural use; when this is excluded, the proportion of farms with some other diversified activity is 33 per cent for 2012/13.
The Government offers a checklist of questions to ask yourself if you’re thinking of diversifying as well as a host of useful information and links to examples of farms which have successfully diversified.
However, while the lure of an extra income can be a sensible move for many, financial planning experts at NFU Mutual have issued a note of caution and urged farmers to consider the tax implications of changing the nature of your business.
“A lot of people assume that as the Government is encouraging farmers to diversify it wouldn’t want to punish us with Inheritance Tax for doing so,” said Sean McCann, chartered financial planner at NFU Mutual. “But unfortunately this isn’t the case.”
For example, if you have converted an old farm building into workshops or offices and let them out you could lose Agricultural Property Relief and leave yourself open to the 40 per cent Inheritance Tax as they are no longer being used for agricultural purposes. Furthermore, if you are not using those offices or workshops for your own business then you might not get Business Property Relief either.
Sean said: “There are steps you can take to mitigate this but it’s worthwhile having a discussion with a financial adviser to weigh up your options.”
Tax is complex and depends on your individual circumstances, and the laws governing it may change.
We recommend consulting your local NFU Mutual Financial Adviser for more detailed information. NFU Mutual Financial Advisers advise on NFU Mutual products and selected products from specialist providers. We'll take the time to explain our advice services and our charges.
You can speak to one of our Financial Advisers via your local NFU Mutual Agent. Alternatively, call our UK-wide team on 0800 051 9374, Monday to Friday 8am to 8pm, Saturday 9am to 12.30pm.