Land is still a good investment

Arable land prices have recently broken the £10,000 barrier, rising to £10,949 per hectare from £9,929.

Mike Taylor of Barbers says: "The latest RICS survey during the second half of 2007 has shown record surges in the cost of farmland with prices rising by 27.9 per cent compared to 22.6 per cent in the first half of the year, and demand far outstripping supply.

"Even in Shropshire we have seen British farmers rivalling Irish and Danish buyers in the market, and with the new changes to the Capital Gains Tax rules we should see conditions loosen as landowners seek to offload land before the April deadline thus avoiding paying a potentially higher percentage of Capital Gains Tax.

"Farming and land ownership are both long-term activities which have traditionally been passed down the generations and as farmers have held their capital in relatively illiquid assets, such as land and buildings, capital-based taxation has in the past been severely damaging to farms and farmland.

"However, over the past few years a range of capital tax reliefs have been introduced to mitigate the impact.

"Investment in farmland has previously proved attractive due to the potential Inheritance Tax reliefs and lifestyle status it confers upon the owner. Under the Inheritance Tax rules farmland is deemed to be land occupied wholly or mainly for the purposes of husbandry.

"Land ownership has often been linked with tenancies, allowing the landowner to divest himself of the day-to-day management of the farm. However, the capital tax disincentives have encouraged owners to seek new ways for carrying on farming on the land such as share farming and contract farming, thus allowing the landowner to be treated as a farmer by HMRC, delegating day-to-day farm management.

"From April 2008 it is proposed that the Chancellor will tax gains of up to £1 million at 10 per cent, with gains over and above this figure being taxed at the new proposed standard rate of 18 per cent. Under the current taxation system there is little or no tax to pay on agricultural land sales (unless the land is sold for development) due to indexation which takes into account inflation. However, under the new proposed system tax will become payable on any gain at 10 per cent."