OV9

Gavster wrote: Tue Nov 26, 2024 3:37 pm

Rich B wrote: Tue Nov 26, 2024 3:20 pm

Gavster wrote: Tue Nov 26, 2024 3:08 pm Honestly the numbers simply don't add up Rich, it's a labour of love.

I’m happy to agree 100% as that’s not really the axe i’m here to grind. But let’s look at the actual question i asked in the first place.

If you have a £5m farm with all the existing equipment handed to you, are you really only going to make £20k a year profit?!

Does the £5m include a farmhouse? E.g. what's the value of the farmed land? Let's say it was £4m of arable land, which at an estimate of £11k/acre would be 363 acres or 147 hectares (https://rural.struttandparker.com/artic ... r-2023-24/).

If they grew wheat on that arable land, the estimated average net margin for arable farms this year is £258 per hectare, which equals £37,926, slightly under 1% (https://rural.struttandparker.com/artic ... vest-2024/)

Let's assume you had a mortgage to buy the land (you wouldn't, but lets pretend), the approximate monthly repayments on a 25 year, £4 million mortgage are going to be over £20k a month, or £240k a year, which leaves an annual loss of just over £200k.

Is that what you're getting at?

Just to add onto that, most farms are run by couples, so that £37k profit is split between two people.

Gavster wrote: Tue Nov 26, 2024 3:37 pm

Rich B wrote: Tue Nov 26, 2024 3:20 pm

Gavster wrote: Tue Nov 26, 2024 3:08 pm Honestly the numbers simply don't add up Rich, it's a labour of love.

I’m happy to agree 100% as that’s not really the axe i’m here to grind. But let’s look at the actual question i asked in the first place.

If you have a £5m farm with all the existing equipment handed to you, are you really only going to make £20k a year profit?!

Does the £5m include a farmhouse? E.g. what's the value of the farmed land? Let's say it was £4m of arable land, which at an estimate of £11k/acre would be 363 acres or 147 hectares (https://rural.struttandparker.com/artic ... r-2023-24/).

If they grew wheat on that arable land, the estimated average net margin for arable farms this year is £258 per hectare, which equals £37,926, slightly under 1% (https://rural.struttandparker.com/artic ... vest-2024/)

Let's assume you had a mortgage to buy the land (you wouldn't, but lets pretend), the approximate monthly repayments on a 25 year, £4 million mortgage are going to be over £20k a month, or £240k a year, which leaves an annual loss of just over £200k.

Is that what you're getting at?

Thats kind of the other possible outcome of my question - if farms are genuinely that unprofitable, then the whole model is broken, IHT or not. Why would anyone, including corporates buy the land at anywhere near the £11k/ha?

If i was sitting on land that could only earn me £40k a year, and someone was offering me £4m - i’d break their arm off (whilst being very suspicious of how they’d make 7-10x that to make it a decent investment)..

They’re buying it as somewhere to land bank and possibly develop if rules change. Which they have, as Merv has been talking about

Rich B wrote: Tue Nov 26, 2024 3:50 pm

Gavster wrote: Tue Nov 26, 2024 3:37 pm

Rich B wrote: Tue Nov 26, 2024 3:20 pm I’m happy to agree 100% as that’s not really the axe i’m here to grind. But let’s look at the actual question i asked in the first place.

If you have a £5m farm with all the existing equipment handed to you, are you really only going to make £20k a year profit?!

Does the £5m include a farmhouse? E.g. what's the value of the farmed land? Let's say it was £4m of arable land, which at an estimate of £11k/acre would be 363 acres or 147 hectares (https://rural.struttandparker.com/artic ... r-2023-24/).

If they grew wheat on that arable land, the estimated average net margin for arable farms this year is £258 per hectare, which equals £37,926, slightly under 1% (https://rural.struttandparker.com/artic ... vest-2024/)

Let's assume you had a mortgage to buy the land (you wouldn't, but lets pretend), the approximate monthly repayments on a 25 year, £4 million mortgage are going to be over £20k a month, or £240k a year, which leaves an annual loss of just over £200k.

Is that what you're getting at?

Thats kind of the other possible outcome of my question - if farms are genuinely that unprofitable, then the whole model is broken, IHT or not. Why would anyone, including corporates buy the land at anywhere near the £11k/ha?

If i was sitting on land that could only earn me £40k a year, and someone was offering me £4m - i’d break their arm off (whilst being very suspicious of how they’d make 7-10x that to make it a decent investment)..

Economies of scale? Gav would be better placed to respond to that tbh.

The people offering £4mil don’t care about the farming business. The value is in the land.

They could just put solar panels or windmills on it and generate mostly passive income.

Rich B wrote: Tue Nov 26, 2024 3:50 pm then the whole model is broken, IHT or not.

Yep, that's about right. The price we pay for food has dropped over the last 50 years while farmland has skyrocketed in value. IHT is one way to close that gap back down a bit, but as with everything in food, you really need lots of different policies to be changed, not just IHT. And if we did everything that's needed it would probably kill off a huge amount of of our current farming population.

ZedLeg wrote: Tue Nov 26, 2024 3:52 pm They’re buying it as somewhere to land bank and possibly develop if rules change. Which they have, as Merv has been talking about

Just to be clear, most of the land that has been acquired over the years has been sat for a long time on the books. But that's not huge amounts of land, contrary to what people like to believe developers get up to.

However, the imminent changes to National Planning Policy, in combination with the effects of the budget (both agri land AND those affecting business lets not forget) have the potential to release huge swathes of fresh, attractive, urban-edge land into the developer market.

Rich B wrote: Tue Nov 26, 2024 3:50 pm

Gavster wrote: Tue Nov 26, 2024 3:37 pm

Rich B wrote: Tue Nov 26, 2024 3:20 pm I’m happy to agree 100% as that’s not really the axe i’m here to grind. But let’s look at the actual question i asked in the first place.

If you have a £5m farm with all the existing equipment handed to you, are you really only going to make £20k a year profit?!

Does the £5m include a farmhouse? E.g. what's the value of the farmed land? Let's say it was £4m of arable land, which at an estimate of £11k/acre would be 363 acres or 147 hectares (https://rural.struttandparker.com/artic ... r-2023-24/).

If they grew wheat on that arable land, the estimated average net margin for arable farms this year is £258 per hectare, which equals £37,926, slightly under 1% (https://rural.struttandparker.com/artic ... vest-2024/)

Let's assume you had a mortgage to buy the land (you wouldn't, but lets pretend), the approximate monthly repayments on a 25 year, £4 million mortgage are going to be over £20k a month, or £240k a year, which leaves an annual loss of just over £200k.

Is that what you're getting at?

Thats kind of the other possible outcome of my question - if farms are genuinely that unprofitable, then the whole model is broken, IHT or not. Why would anyone, including corporates buy the land at anywhere near the £11k/ha?

5.5% rise in value for agricultural land over the last 12 months which would equal £180k increase in value on £4m of land. That's a pretty decent return, especially given the aforementioned relief on various taxes. Get the farm contracted out so that it's still in use and you're basically printing money.

mik wrote: Tue Nov 26, 2024 3:33 pm

Broccers wrote: Tue Nov 26, 2024 3:26 pm
The value of the equipment land and buildings don't have any impact on profit if it's a bad season / crop etc

Not if you inherited them.

Does if you are paying a loan/mortgage for that land/buidlings/equipment.

Has zero impact on profit. There is a cost or no cost, it's a constant before and after death

Broccers wrote: Tue Nov 26, 2024 4:16 pm

mik wrote: Tue Nov 26, 2024 3:33 pm

Broccers wrote: Tue Nov 26, 2024 3:26 pm
The value of the equipment land and buildings don't have any impact on profit if it's a bad season / crop etc

Not if you inherited them.

Does if you are paying a loan/mortgage for that land/buidlings/equipment.

Has zero impact on profit. There is a cost or no cost, it's a constant before and after death

If you inherit your land and machinery - it costs £0 per year.

If you have a mortgage for your land and payments on your machinery - it costs £X per year.

If you buy a printer or some kind for your business, does the cost of buying that printer not have to factor somewhere in your accounts?

Gavster wrote: Tue Nov 26, 2024 4:10 pm

Rich B wrote: Tue Nov 26, 2024 3:50 pm

Gavster wrote: Tue Nov 26, 2024 3:37 pm

Does the £5m include a farmhouse? E.g. what's the value of the farmed land? Let's say it was £4m of arable land, which at an estimate of £11k/acre would be 363 acres or 147 hectares (https://rural.struttandparker.com/artic ... r-2023-24/).

If they grew wheat on that arable land, the estimated average net margin for arable farms this year is £258 per hectare, which equals £37,926, slightly under 1% (https://rural.struttandparker.com/artic ... vest-2024/)

Let's assume you had a mortgage to buy the land (you wouldn't, but lets pretend), the approximate monthly repayments on a 25 year, £4 million mortgage are going to be over £20k a month, or £240k a year, which leaves an annual loss of just over £200k.

Is that what you're getting at?

Thats kind of the other possible outcome of my question - if farms are genuinely that unprofitable, then the whole model is broken, IHT or not. Why would anyone, including corporates buy the land at anywhere near the £11k/ha?

5.5% rise in value for agricultural land over the last 12 months which would equal £180k increase in value on £4m of land. That's a pretty decent return, especially given the aforementioned relief on various taxes. Get the farm contracted out so that it's still in use and you're basically printing money.

And TBF that's exactly what's happening in the resi markets as well. City centre apartments being hoovered up by Chinese, Saudi, Russians etc. Rent them out (or don't as many seem to sit empty), sit on them for years and coin in the returns whenever.

Rich B wrote: Tue Nov 26, 2024 4:21 pm

Broccers wrote: Tue Nov 26, 2024 4:16 pm

mik wrote: Tue Nov 26, 2024 3:33 pm

Not if you inherited them.

Does if you are paying a loan/mortgage for that land/buidlings/equipment.

Has zero impact on profit. There is a cost or no cost, it's a constant before and after death

If you inherit your land and machinery - it costs £0 per year.

If you have a mortgage for your land and payments on your machinery - it costs £X per year.

If you buy a printer or some kind for your business, does the cost of buying that printer not have to factor somewhere in your accounts?

The point is the business profit is the same before and after death. A business doesn't suddenly make more money.

Broccers wrote: Tue Nov 26, 2024 4:36 pm

Rich B wrote: Tue Nov 26, 2024 4:21 pm

Broccers wrote: Tue Nov 26, 2024 4:16 pm

Has zero impact on profit. There is a cost or no cost, it's a constant before and after death

If you inherit your land and machinery - it costs £0 per year.

If you have a mortgage for your land and payments on your machinery - it costs £X per year.

If you buy a printer or some kind for your business, does the cost of buying that printer not have to factor somewhere in your accounts?

The point is the business profit is the same before and after death. A business doesn't suddenly make more money.

Is this me?

i’m saying, it’s cheaper to run a business if you are given the land and equipment for free than if you have to factor in the cost of buying land and equipment.

No it's not. The costs are a constant. Explain how you think it's cheaper as I'm missing something

Broccers wrote: Tue Nov 26, 2024 4:42 pm No it's not. The costs are a constant. Explain how you think it's cheaper as I'm missing something

How are the costs constant? the overheads are wildly different. ok - i’ll do a very simple pair of farms. Farm 1 is all paid for and passed down. Farm 2 was set up from scratch a little while ago.

Farm 1 yearly overheads
land - £0
tractor - £0
seeds and shit - £10,000
Turnover £100,000

Profit £90,000

Farm 2 yearly overheads
land - £50,000 mortgage payments
tractor - £12,000 monthly HP
seeds and shit £10,000
Turnover £100,000

Profit £28,000

I think we're at cross wires here.

Farm 1 is owned by father farmer and makes 40k

Father farmer dies and passes the farm business to Son farmer.

The farm still makes 40k.

The underlying point Broccers is making is correct in that pre-post inheritance there is no sudden uplift of profit - it will carry on making whatever profit is was beforehand so it won't magically have extra margin to be able to finance up IHT (which was one suggestion as to how to avoid selling the farm).

Outstanding finance doesn't disappear and would need to either be repaid / refinanced / rolled over on the death of the owner, so if machinery had HP on it at the point of death, the cost of that will continue (either as continuation of the old agreement or under a refinanced contract).

Harry bought his combine but as he notes in his videos that is not the normal position and many will use contractors which is a variable cost that will be constant pre-post inheritance.

Rich's point seems to be a separate one of buying into a farm and covering the cost of finance to purchase, which would be N/A if inherited so I think you're comprehensively talking past one another. The machinery costs (which need to be replaced periodically anyway) would in the medium term be the same.

One of our guys breeds Blondie bulls and the females are fattened up and sent to slaughter, the good males are fattened up and turned into breeding bulls.

I remember his best year and worst year were the same amount but one had a minus infront of it

Food is too cheap now, most of it is manipulated junk and we are paying for it. I love the idea of community gardens and farms to show how it should be done but that’s an investment no-one will make.

Farm shops are great but are double the price of supermarkets and the consumer quite rightly goes for the cheaper option if they’re told it’s just as good.

Dave!

Swervin_Mervin wrote: Tue Nov 26, 2024 4:22 pm

Gavster wrote: Tue Nov 26, 2024 4:10 pm

Rich B wrote: Tue Nov 26, 2024 3:50 pm Thats kind of the other possible outcome of my question - if farms are genuinely that unprofitable, then the whole model is broken, IHT or not. Why would anyone, including corporates buy the land at anywhere near the £11k/ha?

5.5% rise in value for agricultural land over the last 12 months which would equal £180k increase in value on £4m of land. That's a pretty decent return, especially given the aforementioned relief on various taxes. Get the farm contracted out so that it's still in use and you're basically printing money.

And TBF that's exactly what's happening in the resi markets as well. City centre apartments being hoovered up by Chinese, Saudi, Russians etc. Rent them out (or don't as many seem to sit empty), sit on them for years and coin in the returns whenever.

Foreign investment in UK residential real estate needs to be aligned with the Singapore approach. Currently 60% stamp duty and increased recently from 30%.

It would cause a drop in high end property with a corresponding trickle down effect so it may make sense to phase in gradually. That and actually enforcing AML rules.

ZedLeg wrote: Tue Nov 26, 2024 3:37 pm In general people on small farms don’t own much beyond a tractor and some pto equipment for it.

Stuff like seeding rigs, Combines, bailers etc are usually run by contractors that are hired for the time needed and will work multiple farms.

My uncle was in a sort of ad hoc Co-op with about 6 or 8 other farmers. They all had a tractor each but then owned 1 other key piece of equipment which they all shared and pitched in to use when the time came.

Very effective