There is much to consider when it comes to farm property and insurance these days. Spiralling house prices, changes in tax law and the problem of succession planning all have to be taken into account by today’s growers.
NFU Mutual is responsible for insuring over two-thirds of UK farmers, via a network of local offices across the country. Underwriter Claire Cripps says that one area that is increasingly becoming a factor is climate change, with more ‘extreme weather events’ making it important for growers to think carefully before constructing, and taking care to build on sites that are not exposed.
NFU Mutual offers insurance cover for eventualities from fire, lightning, explosions, storms and floods through to income protection in case of unexpected incapacity. Asked what growers could do to protect themselves, Cripps points out a number of considerations.
Firstly, it is important to have insurance reviewed regularly - preferably on an annual basis - to ensure any new machinery or equipment is covered in the policy, reducing the risk of under-insurance. Buildings should be well-maintained to protect from possible storm damage, particularly in exposed areas, while steps should be taken to ensure that on-farm areas are not openly accessible to arsonists, who tend to find farms attractive game for their crimes.
To combat theft, she advocates the use of floodlights, locking doors and gates and locking up tractors.
To maintain the best employer liability and public liability protection, growers should identify potential hazards, according to Cripps, and make sure that a thorough health and safety policy is written, with first aid facilities to hand.
On the subject of public liability, NFU Mutual has extended policyholders’ cover without charge as a way of supporting the Year of Food and Farming. Farmers hosting events as part of the year’s events, or during next week’s Open Farm Sunday can get in touch with the organisation in order to have their level of cover extended.
NFUM has also produced a checklist for those opening up their farms to the public, urging them to, among other things, make sure that routes around the farm avoid dangerous areas, ensure everyone involved is trained and instructed in what visitors can and cannot do, watch out for children, and make sure toilet and wash facilities are available.
One other area of farm concern this year has come with changes in the tax treatment of farm houses and land, and succession planning. NFUM tax specialist Sean McCann said that sharp increases in the price of farms and land meant that many people are being caught by Capital Gain Tax and Inheritance Tax.
In the latest budget, Gordon Brown announced that IHT thresholds will increase to £350,000 in 2010, but experts believe that this will still leave many farms exposed to the tax.
McCann explained that IHT is charged on the value of your worldwide assets when you die, with the first £300,000 normally tax-free and the excess taxed at 40 percent. And although agricultural property relief could remove farm land and buildings from the equation - provided the necessary conditions are satisfied - farmhouses could now be liable for IHT if they are deemed to be no longer ‘character appropriate’ to the size and nature of a farm’s activities.
The mutual said the steps that growers could take to reduce or avoid IHT include:
Giving away up to £3,000 each tax year, which takes advantage of your Annual Exemption
Giving small gifts of up to £250 to a number of different people, using your Small Gifts Exemption allowance
Give wedding gifts to your children of up to £5,000 each under the Marriage Gifts Exemption rule
Giving to charities
Giving gifts out of your after-tax income
Using a potentially exempt transfer, whereby a gift is not covered by any of the other exemptions. However the transfer is only tax free if you live for at least seven years after making it.
Many horticultural businesses remain family firms, and this also needs considerable thought when it comes to planning for the next generation, according to David Harvey, chief executive of the Society of Trust and Estate Practitioners.
He says that passing on the family business to the next generation throws up four major issues: getting family agreement; getting it right for the retiring generation; ensuring that the money is there to buy out the older generation and to allow the business to carry on; and tax planning.
Harvey explains that there are essentially seven ways forward for changing generations:
The Crown Prince - one heir, however chosen
The Sibling Partnership - roles to each brother or sister according to their talents
The Cousin Consortium - wide family ownership
The Stop Gap Manager - holding the fort until the next generation are ready
Family ownership and professional managers - when the family wish to maintain ownership but not to run the business
Management Buy Out
Market Sale
Harvey recommends starting early, encouraging inter-generational teamwork, developing a succession plan, involving the family and colleagues in your thinking and bringing them with you, establishing a training process for the heirs, planning for retirement, deciding on a retirement date and then, crucially, sticking to it.
The succession plan, he says, should include a statement of the distribution of ownership, the identity of the new leader or leaders, how all the new leader or leaders are to be trained for their role, a definition of the role of other key family and business members during the transition, mechanics for the purchase or sale of stakes in the business, tax and legal considerations, retirement proposals, a procedure for monitoring the process and dealing with disputes, and a timetable.
In the here and now, for growers looking to expand their business, obtaining planning permission can be the single biggest headache. One firm that made remarkably swift progress with a glasshouse application was Delamore. Its managing director, Peter Wood, believes that the old mantra ‘location, location, location’ is key for successful new build applications. “The best place to be is in the middle of nowhere where the stance of the council is more positive,” he explains, particularly when the business can argue that it will be creating jobs and wealth for the local community.
Wood says that the best approach is to adopt a completely open tack with the council, asking them before the application is submitted which considerations are most important to them. These could include how large vehicles will access the site, such as via a side road or main road, and keeping neighbours informed at all points in the process.
When the council is less favourable, Wood advocates getting a good adviser who understands the local guidelines. “Because it can become a nightmare,” he concedes. The cost is not too great when you submit a single application, but it can become so if it needs to be resubmitted multiple times, making it all the more important that the ground work is done in advance.
In the retail nursery and garden centre sector generally, Alexander Mackie’s managing director, Donald Earnshaw, says that the ‘Wyevale’ effect is boosting interest in the sector because of the involvement of Sir Tom Hunter.
But surely prices are close to a peak and now would be a poor time to invest in farm property? “It’s very rare that you lose out on property,” Earnshaw counters. “It’s always been a fairly good investment, and overall I don’t see a price collapse as likely to happen.”
On the same subject, the Commission for Rural Communities has just released a report showing that in 2005 nearly one third (47,000) of all rural house sales were cash purchases.
The report, entitled ‘Cash purchases of housing stock’, revealed that the south west of England had the highest proportion of cash purchases compared to all other English regions.
The CRC’s chairman and rural advocate, Stuart Burgess, says that the significance of the development is that buying houses for cash in rural areas has led to increased pressure on an already stretched housing market, exacerbating the problems of affordability. This is consequently mirroring the national problem of people being unable to live in the location of their choice, with wealthy people buying up multiple properties for cash.
“Buying houses for cash also has long term implications for the sustainability of the countryside,” he adds.
Other headline findings from the report included:
In villages, hamlets and isolated dwellings in sparse areas nearly 50 percent of all purchases are made with cash
There are high proportions of houses bought with cash in districts where there are also high proportions of second homes, high percentages of households on low income, high rates of net internal migration and high rates of population growth
Of 11 high-pressure districts that are experiencing the most extreme values of these inter-related factors, 10 of these are rural districts and seven of these are located in the south west region
Of the 71 districts with the highest proportion of cash purchases, 53
are rural.
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