Land use and Diversification Flashcards
Describe the principles and rational behind diversification?
- We live in uncertain times. Already many farm businesses have felt the need to vary their range of products and services to be able to turn a profit. This number is likely to increase due to Brexit, which may mean huge changes in agricultural support and in costs and income from farm production.
- Diversification is trying to spread the risk by having a number of different income streams, which can bring in valuable business if weather causes a bad harvest or commodity prices are unfavourable
- 60% of farms have already diversified with 90% of those saying that diversifying has been a success. Of the remaining farms who haven’t diversified 20% of those are planning to diversify in to other enterprises to support their farm business after Brexit
Can you give some legal tips for diversification?
- It pays to involve a solicitor in drawing up any agreement
- Check title deeds for restrictive covenants, which may prevent certain activities, constructions or uses of land or buildings
- Obtain the prior consent of any lender
- Check the necessary planning consents are in place
- Write wills and maybe cross-insure individuals against death/debts being repayable
- Check and observe health and safety and other regulatory requirements
What tax issues are there to consider when diverisifying a farm business?
Inheritance Tax (IHT)
Agricultural Property Relief (APR) and Business Property Relief (BPR) can help reduce or even eliminate IHT on farming and other qualifying business assets.
- APR needs the land or buildings to be occupied for agriculture - converting to non ag use loses APR, BPS could be used instead..
- BPR needs the land or buildings to be used for ‘trading’ rather than ‘investment’ purposes. Diversifications that involve collecting rent with minimal management or provision of services are likely to be treated as ‘investments’ and so less likely to qualify for BPR.
OTHER TAX IMPLICATIONS Depending on the nature and scale of the diversification there could be other tax implications including a potential risk to Capital Gains Tax reliefs, potential loss of farmer’s averaging and impacts on VAT.
Can you name some key points you should consider for diversification projects?
- Why you want to diversify, how productive is the core farming business?
- Could I be selling what I produce directly to consumers, especially if I process it myself?
- What assets are there on the farm and are they being used as effectively as possible? (land, habitats, buildings etc.)
- Direct farm payments will be gradually replaced by Environmental Land Management schemes, so what environmental assets are there on the farm that could be enhanced?
- Public access and engagement are viewed as ‘public goods.’ What business opportunities are there from greater engagement from the public? This could involve providing educational or recreational experiences and services to the public.
- Digital technology continues to develop; how can it benefit your farm or create diversification opportunities?
- Talk to fellow farmers about their experiences.
- Finally, what are the unique advantages and challenges on your farm and how can you maximise the first, while minimising the second?
Also consider:
- The implications on your time, your core farm business activities, cashflow, staffing, potential liabilities etc.
- Information about skills, resources and market conditions that you have gained from other local farmers who have diversified
- How much the diversified business will cost to set up
- How you will finance it
- How profitable it will be
- How to market it
- competition
- Legal requirements, tax and national insurance issues.
Can you name some diversification options?
Nature - Stewardship
Renewable energy
Livestock - Chickens, aplpacas, cheese etc
Trees - Firewood, recreation etc
Crops - Hops, energy crops, contracting
Non ag - tourism, retail, office etc
What are the steps involved in a diversification project?
- develop your ideas
- prepare a business plan
- seek planning permission where required
- research funding options and submit applications
- identify and undertake suitable training for existing personnel and/or recruit staff with the skills you need
Tell me more about renewable energy including planning permission?
Renewable energy
- Doesn’t have subsidies it used to but still worth looking at
- Large scale solar can generate up to £900 per acre.
- Small scale, useful if your farm uses a lot of electricity
- Permitted Development Rights were applied to solar PV systems installed onto commercial, industrial and agricultural roofspaces. The key piece of legistaltion is The Town and Country Planning (General Permitted Development) (Amendment) (England) Order 2012. (large scale ground mounted does require pp)
Planning Permission Required - Key factors the planners will consider:
- Efficient Land Use - Development of brownfield and previously unused land is encouraged wherever possible. Where greenfield or agricultural land is to be used, dual usage (such as PV + grazing animals) or increasing the biodiversity in and around the installation area is encouraged.
How can you diversify livestock?
- Free range eggs - New sheds cost anything from £700,000-£1.2 million for units to house 16,000-32,000 birds respectively
- Cashmere goats, alpacas, llamas and ostriches
- Game
Add value to produce
- Produce cheese, cream, butter, ice cream from your milk
How can trees be a diversification option?
- Firewood
- Recreation - e.g. glamping, high wire experiences and forest schools
- Fruit and nut species
- Truffles
- Cricket bat willows
- 20yr life
- Approx. £350 per tree
How can you diversfy with crops?
- Hops, Increase in micro breweries, has increased demand, area increasing
- wildflower seed production
- essential oil crops
- Energy crops
- Contracting
- Climate change is creating opportunities to diversify into crops that are not native to the UK - e.g. vines and olives - or into crops for use in electricity, heat generation and/or biofuels.
Tell me about non agricultural diversification?
- tourist accommodation - e.g. B&B, holiday lets
- retail outlets and catering - e.g. a farm shop and tea rooms, rural tourism - e.g. farm attractions, wedding venue
- converting redundant buildings to other uses - e.g. offices, craft workshops, art galleries
- making and selling non-agricultural products - e.g. cakes and beer
- training and promotion of rural crafts and arts - e.g. dry stone walling workshops
- adding value - e.g. smoked-food products, cheese and ice-cream
energy markets - e.g. wood fuel projects
What is there to consider from a planning point of view?
- know the planning options. A diversification project that uses existing farm buildings is likely to require full planning permission for change of use.
- Permitted Development Rights (PDR), make it possible to convert agricultural buildings for some commercial purposes.
- Care is needed here as there are important restrictions which, if overlooked, could necessitate a full application and may risk rejection.
- Need written local planning authority approval before can start.
- Most importantly, while change of use may be achievable under PDR, any physical changes that alter the appearance of the building will require full planning permission.
- The traffic created by the development will be a major consideration in gaining permission and a traffic survey may be needed.
Planning pointers
- Don’t underestimate timescales. It can take several months to produce the required documentation then eight weeks in planning once the application has been validated.
- Don’t underestimate submission costs. Typically, projects may require ecological, structural and contamination surveys, plus flood risk and air quality/noise surveys. This is in addition to CAD drawings, application forms and design and access statements.
- Timing of surveys is critical. For example, bat surveys must be undertaken between April and September.
- Planning fees for non-agricultural buildings are high, at £385 per 75sq/m
- Understanding planning policy is key, Policies are frequently updated so make sure you use the most recent one.
- Type of land you farm will also influence what sort of development is permitted. For example, the Agricultural Land Classification system is used to assess the agricultural quality of land, while Environmental Impact Assessments look at the potential impact of any development on your land
- Planning policy guidance
- Planning permission decisions will take into account government planning policy statements, which set out priorities for local areas and regions.
- The planning permission system in rural areas is based on the government’s Planning Policy Statement (PPS) 7, which includes guidance on farm diversification.
- PPS 7 states that ‘diversification into non-agricultural activities is vital to the continuing viability of many farm enterprises’, and that local authorities should support ‘well conceived’ plans for diversification in rural areas, including green belt land.
- The type of diversification you choose may also be influenced by your local parish or community plan - these are documents in which local communities set out their priorities for social and business development. This can help you see which planning permissions are likely to be successful.
What is an Environmental Impact Assessment (EIA)?
It is a process of evaluating the likely environmental impacts of a proposed project or development, taking into account inter-related socio-economic, cultural and human-health impacts, both beneficial and adverse.
Tell me about permitted development?
- A simpler, quicker and cheaper way to get farm development through the planning system, permitted development rights (the right to convert buildings without having to seek a full planning permission) by increasing the size limit of new agricultural buildings to 1,000 square metres and allowed for more options to convert existing farm buildings into up to 5 family homes (Class Q).
- In certain cases, the permitted development rights for development on agricultural units of 5 hectares or more and for forestry cannot be exercised unless the farmer or other developer has applied to the local planning authority for a determination as to whether their prior approval will be required for certain details (General Permitted Development Order, Part 6, A.2(2) and (3)). The local planning authority have 28 days for initial consideration of the proposed development.
- If farm is 5 hectares or more, you have the right to:
- erect, extend or alter a building
- carry out excavations and engineering operations needed for agricultural purposes - though you may still require approval for certain details of the development.
- The types of permitted development include:
- temporary uses of land
- agricultural buildings below a certain size
- forestry buildings
- caravan sites and related buildings in some circumstances
Tell me about funding for diversification projects?
Funding for diversification
As well as funding from the Rural Development Programme for England (RDPE) and commercial banks, capital and revenue funds are available from a range of public sector, charitable and private sources. This is particularly important for tenant farmers, who may face problems obtaining credit from commercial institutions.
RPDE funding
The RPDE supports the rural community in various ways, including funding for business development and to improve opportunities. The RDPE also includes environmental management schemes & forestry schemes.
Commercial loans and overdrafts
Private investment provided by banks and other financial institutions remains an important source of funding for business diversification. To get commercial funding, you will normally need a detailed and well-researched business plan.
Technological funding
There are funding schemes specifically designed to help you develop new technologies for a diversified business.
Funding for climate change adaptation or mitigation
Funding and advice are available to help farmers diversify their businesses in response to climate change, e.g. by growing biofuels, deploying commercial tidal energy farms or setting up anaerobic digestion facilities.
Financial tips
- Shop around to find the best finance deal
- Securing the correct funding – peer-to-peer, traditional debt or family money – all require scrutiny of the terms and conditions
- For banks and public funding, produce a detailed business plan including realistic cash flow projections over three years
- For farm diversification, investigate the Rural Development Plan for England opportunities. This includes local Leader funding and the national Growth Programme.
- Don’t underestimate how long it takes to submit an RDPE application – run it alongside and in the same timescale as planning
- Don’t try to get funding for every item. Stick to the big-ticket items only.
- Include three identical quotes. For complex build projects produce a detailed specification to ensure quotes are the same.
- Grants are paid in arrears so ensure the cash flow is sustained through the build
