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Diversification can offer real opportunities; Law firm Hugh James, in collaboration with the Country Landowners Association, has today published its Spotlight report on agricultural diversification. Matthew Evans, head of wealth management at Hugh James and co-author of the report, outlines some key considerations for farming businesses contemplating diversification.

WITH falling commodity prices, decreasing farming subsidies and the uncertainty surrounding the UK's future in Europe, agricultural diversification continues to be an important consideration for farmers.

Potential options which many farmers have successfully exploited include investment in new technology to support higher production rates and tourism ventures such as farm parks or accommodation.

With consumers increasingly interested in provenance, farm shops can work well as can food production, while renewable energy production can be supported by the accommodation of solar panels, for example.

While diversification offers real opportunities for entrepreneurial farmers, certain measures should be in place to safeguard both existing and diversified businesses and avoid increased costs.

First up is to ensure the existing business has the correct legal structure in place. Unincorporated agricultural businesses, particularly partnerships, are often not supported by documentation, and the absence of a formal partnership agreement could have disastrous consequences for farmers, particularly if a business partner dies.

Once the documentation is in place to protect the business, it provides a legal foundation that can be updated as the business grows and diversifies further.

Succession planning is another key element of protecting farming businesses, with several widely reported cases over the last couple years highlighting the family disputes that can arise over farming assets. A common example is when a child of the family expects to inherit the land in exchange for some years in working for a reduced wage or for free.

Without a clear succession plan, a diversified enterprise that changes the legal status, ownership or use of the land could be a potential source of conflict with these expectations.

Ensuring a professionally drafted will, lasting power of attorney and regular reviews of future plans are put in place will ensure the business can continue with no complex - and costly - disputes.

While grants are of huge importance to the rural economy, farming subsidies have been declining while support for other sectors, such as renewables, is on the up.

So one key calculation to be made is the net gain in subsidies that the chosen diversified enterprise will achieve versus any agricultural support that may be lost.

Diversification is likely to affect farmers' tax liability, and robust advice can pay dividends in what is a fairly complex area. For example, while agricultural assets are protected by more favourable relief (APR) against inheritance tax, any change to non-agricultural use would remove this and so needs to be considered carefully.

Farming businesses can still qualify for Business Property Relief (BPR) under certain conditions, with one notable exception - property letting. At the same time, who lives in the farmhouse and their role in the business can also have signifi-cant tax implications.

Finally, agricultural diversification usually involves a different use of land, the addition of buildings, renovations or other work requiring planning permissions.

So it's worth checking out the likelihood of being granted permission to do what you want before spending time and money on progressing your plans.

All of these considerations can make diversification seem a daunting prospect - but, with robust advice, research and planning, it can also provide lucrative solutions in challenging times for agricultural businesses.

To read the full Spotlight report on agricultural diversification, go to


With consumers increasingly interested in provenance, farm shops can work well for those looking to diversify
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Title Annotation:Features
Publication:Western Mail (Cardiff, Wales)
Date:Mar 22, 2016
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