A new report has been published outlining the issues that agricultural businesses need to tackle ahead of diversifying.
The report is the latest in Welsh law firm's Hugh James’s Spotlight series, which focus on the key challenges facing individual sectors and their legal implications.
Director of the CLA in Wales, Rebecca Williams, said diversification has never been more critical to the sector.
“The agriculture industry has seen some difficult times of late and there are uncertain times ahead,” she said.
“For many farmers, looking for alternative sources of income is essential to the viability of the business and diversification takes many forms.
“There is always a need to plan and prepare, seek advice and understand the long-term implications for the core farming business before making any changes.”
Matthew Evans, Head of Wealth Management at Hugh James and co-author of the report, says there are some key areas farming businesses need to consider before investing too much time or money.
“Uncertainty is, unfortunately, a way of life in the rural economy – and, with the EU referendum looming and the spread of commodity pricing, that doesn’t look like it’s going to change any time soon,” he said.
“So, diversification can seem like – and often is – an attractive prospect, whether that’s introducing new technology, launching tourism or retail venture or hosting renewable energy production, for example.
“The first area to think about is protecting your business. Making sure any existing and future concerns have legal documentation confirming their status and structure, as well as a clear succession.
“Often, unincorporated agricultural businesses aren’t supported by documentation – which can have disastrous financial consequences. But once documentation is in place, it can be updated as the business grows and diversifies.
“Succession planning has hit the headlines over the last couple years, with family disputes arising when, for example, someone in the family expects to inherit the land after having worked for a low wage or even for free.
“So a professionally drafted will, lasting power of attorney and regular reviews of future plans will avoid family or other, potentially costly disputes.
“Secondly, the net effect diversification will have on subsidies needs to be calculated: farming subsidies have been declining while support for other sectors, such as renewables, is on the up, so it may be an upward shift.
“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 significant tax implications.
“Finally – planning permission. Agricultural diversification usually involves a different use of land, the addition of buildings, renovations or other work requiring planning permissions.
“It’s worth researching 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.
