Investment partner Stephen Hall picks four key market influences which could affect investor confidence and acquisitions in UK farmland.
Political uncertainty has done little to inspire confidence in the individuals and businesses looking to invest in UK farmland.
Throughout the final quarter of 2018, and the first quarter of this year, most have kept a watching brief while have taken place.
This has led to a quieter than usual period and, at the time of writing, placing a timescale on how long the uncertainty will last would be pure speculation.
However, there are a number of political and economic influences which we know from experience will impact decisions made in the investments and acquisitions arena.
Each of these will stimulate activity or dampen enthusiasm from purchasers to a greater or lesser degree.
As of Spring 2019, we do not have clarity over what trade deals will be done and what tariffs will be applied to goods entering and leaving the UK.
However, this is an area which will have a significant impact on investment – it remains to be seen whether that impact is positive or negative.
Whatever happens, we are going to see changes to trade. We have been dealing in a market where trade tariffs have been set centrally by the EU, and they have broadly focused on ensuring the protection of member states’ agricultural industries.
Post Brexit, the terms of trading agreements will be determined by the political will of the UK government at any given time, and the position taken by our potential trade partners.
The Government has stated in the Agriculture Bill that it intends to move away from an acreage payment to occupiers of land, towards a system that targets public money at public goods – so payments will largely depend on farmers and landowners protecting and enhancing the environment.
Most farms and estates are dependent – to some degree – on the income they have historically received from Europe via the Common Agricultural Policy.
This change of direction from the Government is a significant shift away from large-scale, pro-rata income and, despite the proposed transition period, the move will have an impact on decisions to invest in, or divest money from, farmland.
It’s fair to say that agriculture has enjoyed a relatively benign tax regime for a number of years, and this could be the focus of any government’s attention going forward, regardless of whether it’s Labour or Conservative led.
There is a question as to whether the current tax system is sustainable – there has been talk for some time of a different approach, but we simply don’t know at this stage what that will be.
A left-leaning government is almost certainly going to consider changes to Agricultural Property Relief, and the Conservative Party has been making noises about changing the tax system too.
It would be a popular policy in Whitehall – the number of people who benefit from agricultural property relief is relatively few in number, so supporters lack collective political power.
Overseas investors in the UK will see a strengthening of their position if the pound devalues.
However, shortly after the Brexit referendum vote, we saw the pound fall by 15%, which was favourable to overseas buyers of UK property, but this failed to be a significant factor in the farmland market because, from a policy point of view, agriculture was still left in a state of uncertainty.
The increased buying power didn’t solve the fundamental concern over issues such as the future of subsidies and agricultural policy.
A further decline in the value of sterling, twinned with clarity from a trade and subsidy perspective, could see currency fluctuation become a bigger driver and have a positive impact on the land market.
For further information, contact Stephen Hall, Partner (firstname.lastname@example.org / 020 7518 3264), or your local Carter Jonas office.