Housing shortage brings opportunity
THERE is currently no better way to maximise value of farm land than by selling for development. But it is what landowners do with the proceeds which can make or break a business.
Many landowners were promised land would be developed before the recession, but developers quickly withdrew post-crash and sites were not promoted. Now, with the Government’s focus on building, many owners are being notified the sale of their land will occur sooner rather than later.
The National Planning Policy Framework has created the right platform for development throughout the country.
Coupled with this, there is a seemingly unquenchable demand for housing sites in good locations. Housing demand is outstripping supply and will do for some years to come due to a backlog of stalled development sites.
Developers are now building again, infrastructure is being upgraded and there is a renewed appetite from builders and land promoters to secure the right sites at competitive prices.
Landowners on the edge of existing developments or those with land earmarked for new settlements are finally seeing deals complete.
We are talking big figures, especially over a sizeable scheme. The never ending debate over land use and the conflict between food production, housing, recreation and business space will ever be thus, but the need for new, sustainable and affordable homes is clearly high on the Government agenda.
It is important to know your tax stance. Once a sale completes, landowners can offset a potentially high capital gains tax by reinvesting the proceeds – or ‘rolling over’– into a similar qualifying asset. The one we see most commonly is clients reinvesting into land.
HMRC allows a limited timescale in which recipients of development proceeds are able to acquire a replacement farm or block of land in order to maximise their tax relief. This is easier said than done with a limited supply of land on the market currently, with less available owing to market forces, consolidation of current land holdings and the finite nature of the asset.
We are increasingly asked by landowners who have been paid for their development land to advise on reinvestment strategy – specifically to source and acquire replacement property.
Many deals are done off-market and in some instances the farms or properties will not qualify for rollover due to tenancies or other agreements along with the nature of the holdings.
We would advise landowners to be proactive and learn about their local market near the potential development or farmland. There is nothing wrong with contacting the agents working in the area and asking their opinion.
We say recognising the best strategy to benefit the situation can make or break the deal; not all property will be right as an investment and rarely do you acquire the first holding you see, especially as good land lots often attract several other bidders.