The pandemic restrictions and ongoing Brexit-related issues have had a significant impact on the UK’s farming and agricultural sector. In the height of Covid-19 last spring, many farmers found their supply to core markets including the catering industry cut off overnight.
As a result, farm incomes dropped considerably last year, falling from nearly £5.2bn in 2019 to just over £4.1bn in 2020, the lowest value in real terms since 2007.
Volatility is something farmers are used to managing, however events of the last 12 months have seen many farming businesses consider putting the ‘for sale’ sign up – either as a way to generate much-needed revenue or call time on a hard-earned career.
Selling farmland can often be a huge decision with life-changing consequences for the owner and their family, so it is important to be prepared and aware of the common legal and tax pitfalls to ensure the process remains as smooth as possible.
Preparation is key
The best sales allow time for preparation and the key is to have everything in order before the property goes on the market.
Often, a seller does not think of instructing their solicitor until after a property has been marketed and a buyer is found. This can inevitably lead to delays if legal issues have to be resolved. A sales contract pack should be prepared from the outset covering title to the land, replies to industry standard agricultural enquiries, draft contract and transfer papers and ideally a full suite of searches for the property. By doing this the seller’s legal team can pre-empt and rectify any enquiries that might arise from a prospective buyer.
A good legal sales pack contains far more in it than many sellers are aware of and spending money on this in the short term pays dividends in the long term by helping effect a quick turn around of a sale. Otherwise, legal fees will inevitably be higher if a seller’s solicitor has to deal with communications on all such issues with a buyer’s solicitor that could have been addressed in a timely manner before the land was marketed.
The pack will include rights to ownership. Traditionally, farmland has been passed through families over generations and, as such, farms often remain unregistered with the Land Registry. Title deeds are needed to prove original ownership, so it is important to ensure the land is registered before a sale process begins. The bigger the farm, the more complex the process may be as the land is often made up of different titles of ownership. Comparing the physical land with how the titles are documented can help to understand who owns what.
It is no secret that common issues will crop up throughout the sale process. In the majority of cases, these can be easily resolved and seen as nothing more than a bump in the road. However, it is important to take the time to identify potential legal issues as early as possible.
In most transactions we will uncover undocumented occupancies such as verbal lettings of barns and outbuildings or sporting arrangements that take place on the land, such as shooting, fishing or hunting. While you might have had long-lasting relationships with these occupants, an informal verbal arrangement can often make prospective buyers nervous and raise questions about how the land is used if circumstances change. Ideally, all informal occupancies should be documented correctly and included in the sales pack.
Similarly, the same applies to tenants that might occupy cottages or farmhouses on the land. Tenants’ rights and protections in relation to the property are determined by their type of tenancy and consequently, their rights on eviction. If there are employees at the property, such as farmworkers, they will also need to be considered when outlining the terms of the sale.
Rural properties are far more likely to be located off the publicly adopted highway network, with access along private or shared access roads. While there may not have been any issue or previous history with access disputes, it is vital to determine formal rights of access exist that lead to a publicly adopted highway and to have outlined who is responsible for the maintenance and repair of private roads and tracks.
Public rights of way across the land and any permissive routes should also be confirmed in the contract pack at the start of the process.
Water is critical in the farming industry. Details on mains connections, private connections or abstraction licences must be considered.
Wayleave agreements for any electric or telephone lines crossing the land included and details of any known gas pipes located under the site passed on. Any services that are used by the site or that the site is subject to agreements for must be declared.
While it is crucial to ensure that the legal checklist is completed early on in the sale process, understanding the tax liabilities and putting provisions in place for long-term tax planning is equally as important.
Typically, a farm sale will result in a Capital Gains Tax (CGT) liability. However, it may be possible for the landowner to benefit from Business Asset Disposal Relief to minimise the tax bill. The relief is aimed at benefitting those whose business is either brought to an end or sold on, and in turn, reducing the rate of CGT to 10 per cent.
Once farmland is converted into cash following a sale, it will no longer benefit from Agricultural Property Relief or Business Property Relief and will therefore be subject to Inheritance Tax (IHT). Lifetime IHT planning may be necessary to be able to keep the fruits of your hard-earned labour in the family for future generations.
Selling farmland can be an exhaustive process, with many potential legal pitfalls along the way. As a seller, being prepared and having all the correct paperwork in place on day one will pay dividends in the long run.
How Moore Barlow can help you
If you’re considering selling a farm or rural land and require expert advice and services, please contact our team today.