Policy and cash uncertainty delays farmers keen to diversify

Farmers are increasingly seeing diversification as a bigger part of their long-term income, but have held back from putting plans in place this year due to all the uncertainty overshadowing the sector, research by NFU Mutual shows.

The rural insurer’s annual diversification survey of 1,654 farmers across the UK revealed that 37% plan to increase diversification over the next five years, up 3% on 2021’s figures.

See also: Survey shows surge in farm diversification

But more farmers have held back on diversification this year amid soaring costs for inputs across all sectors, and as they wait for further clarity on the Environment Land Management scheme and what their payments for delivering public goods will amount to.

Chris Walsh, NFU Mutual farm insurance specialist, said: “We’re not surprised to see that some farmers have put a hold on their plans while waiting for more details of an expected new government farm support scheme.

“For new ventures involving the public, such as holiday accommodation, food processing and retailing, it’s now vital to assess the likely impact of the cost-of-living crisis on public spending.”   

In 2022, holiday accommodation – camping, glamping, caravan sites, B&B and holiday cottages – were the most popular diversifications developed by farmers, NFU Mutual’s research shows.

In joint-second place was renewable energy and non-holiday property letting.

The research also showed that income from diversification represented 12% of a businesses’ total income in 2022, based on the farmers surveyed. This is down from 16% last year.

Financial implications

NFU Mutual said financial planning is vital when it comes to diversification.

Partnership and shareholder agreements, wills, and protection cover should all be revisited to make sure they reflect the diversified business.

Diversifying can also have significant impacts on your inheritance tax liabilities, chartered financial planner Sean McCann said.

Getting the business structure right can help preserve valuable inheritance tax reliefs.

“Many family farms benefit from agricultural property relief [APR] and business property relief [BPR], which can reduce or eliminate inheritance tax on farming and other business assets,” Mr McCann said.

“A key requirement in securing APR is that the land or buildings must be occupied for agriculture, so converting farm buildings and letting them out for non-agricultural use, such as workshops, storage units or residential letting, will normally mean that APR is lost.

“To get BPR, the land or buildings must normally 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.”