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Most farmers are aware that in recent years the price of agricultural land has been far higher than one would expect if the value was directly related to the economic return which can be made from it. There have been many reasons for this of course, not least of all a shortage in the supply of land coming to the market as compared to previous years. However, other factors which have driven high values include the significant tax benefits which investing in agricultural land brings, including the potential to obtain relief on the value of the land at 100% for Inheritance Tax purposes.

There have been some signals however that the seemingly unstoppable upwards rise in land values might be beginning to slow or even in some cases begun to fall. Some commentators have suggested that bare land in Scotland may have reduced in value by as much as 1% over the course of last year. The reasons why this might be happening are not difficult to discover. Very poor commodity prices, reducing agricultural subsidy income as a result of CAP reform and uncertainty about the outcome of the EU Referendum are all having an effect on confidence amongst purchasers.

Against that background, however, the value of land remains high in historic terms. Most commentators agree that there will be a continuing demand for good quality agricultural land. The gradual recovery of the market for agricultural land with development potential means that there are farmers looking to rollover the proceeds of development sales and of course as long as agricultural land attracts relief from IHT at 100% of its value it will continue to be regarded as a good hedge investment for tax planning purposes. The fact that the widely predicted increase in interest rates appears to have been postponed will also help the market.

Whether or not the slight reduction in land values over the course of last year is a straw in the wind in respect of things to come or a temporary blip remains to be seen. It may well be the case however that the days of booming agricultural land values are at an end, at least for the time being.

Chambers UK 2018

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