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.
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.
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.”
NFU Mutual diversification checklist
- Evaluate whether you have the skills, resources and commitment to make diversification work for you
- Thoroughly review your farm business and identify strengths and areas where you can add value to your existing model
- Make a full and frank assessment of your assets – including people, land, location and buildings
- Thoroughly research the market, local demand, and existing competition for your proposed diversification
- Work closely with planners and highway authorities to avoid problems when your plans are advanced
- Research the likely availability of local workers – often a challenge for hospitality or retail diversifications in remote locations
- Consider health and safety issues at planning stage to avoid having to make expensive changes later on