Because the farming sector is being influenced by so many different factors, traditional farm mortgage providers have been forced to adapt their offerings to farm purchasers. In the old days, farmers could boost their incomes simply by increasing their land holdings and their livestock numbers, but this is no longer necessarily the case. Changes to the farm produce market influenced by EU subsidies, environmental concerns and the growth of the large supermarket chains have all forced farmers to reassess their positions.
Farm Mortgage Considerations
When considering an application for a farm mortgage, the mortgage lender will want to know the values of the following items:
- Farm buildings
- Other residential buildings
- Arable land
- Other land
- Shooting and fishing rights
In addition, the following factors can influence the overall valuation of a farm property:
- Current profitability and future prospects of the core farm business
- Rental income from property and land
- Availability and level of subsidies
- Development and diversification potential
- Location and lifestyle related features
- Green issues – pollution risks, flood prevention requirements, possible renewable energy sources
Ownership of farmland offers potential inheritance tax reliefs, subject to certain conditions being met.
Farmland is defined as land that is ‘wholly or mainly for the purposes of husbandry such as the production of cereals, milk, dairy products, livestock and their products’.
The definition of farmland for inheritance tax purposes includes woodlands and buildings used as part of the farming business, together with cottages, farm buildings and farmhouses.
Two types of inheritance tax reliefs are available, which reduce the value of qualifying assets, subject to certain conditions:
- Agricultural Property Relief
- Business Property Relief
Agricultural Property Relief is a special relief for farmers. In order to qualify farmland must either:
- Have been owned and farmed personally by the farmer for 2 years or...
- Owned by the farmer for 7 years and used by someone else (i.e. a tenant) for the purposes of farming
It should be noted that with farm business diversification increasing, farmers need to be careful not to overstep HM Revenue and Customs guidelines, if they are to avoid large inheritance tax liabilities.
- Financial institutions consider a number of different criteria when assessing farm mortgage applications
- Farm ownership offers potential for inheritance tax relief