The agricultural and rural environment is rapidly changing, with uncertainty over the future of subsidy payments, fluctuating agricultural commodity markets, changes in planning policy and consumer demand. The impacts of these changes in recent years are clear to see. While walking around your local ploughing match ten years ago, you could guarantee conversation would be focused on crop yields for the previous year and cropping strategies for the next. Now, those same farmers are as likely to be discussing planning for a holiday let or the conversion of a farm barn to a house, writes Dan Page of Samuel & Son.
There are more opportunities now than ever to convert and reuse farm buildings for a plethora of purposes, which can provide farm businesses with additional and more consistent income streams, helping to ensure long term business viability for future generations. Planning is of course an essential item for consideration, however, there are several further matters for thought, such as cost and taxation implications, timescales involved and the impact on your continued enjoyment of the farm. This article aims to point out the various benefits and pitfalls to avoid if you are thinking of using existing buildings to maximise the value and productivity of your business.
Lifestyle and ambition
One of the first considerations to decide whether, and indeed how, to re-use an existing building, is comprehending the impact of a diversification or rented property on the farm. In a lot of cases, it may be the first time the farm has opened its doors to tenants and/or the general public, which naturally has potential to impact on lifestyle, quiet enjoyment of the farm and existing agricultural business.
As such, it is crucial that you establish a line in the sand from the outset, determining how much you are willing to compromise to facilitate diversification and additional income streams. This is very much a balancing act which will differ depending on your ambitions, personal circumstances, the size and makeup of the farm itself, and the nature of the existing agricultural business. Having considered these items, you should then be in a far stronger position to assess your options and make the decision best suited to you.
Business strategy and viability
The success of any business is dictated by identifying a demand in the market, creating a viable product or service which meets this demand, while setting yourself apart from competitors.
The importance of market research is to establish what there is demand for, whether your building is suitable for the proposed use, and what realistic returns/yields might be achievable. It will then enable you to weigh up the risk and cost associated with establishing the alternative use, against the financial returns, potential tax benefits and increase in asset value. Once you have selected which route to adopt, you can use this approach to create a strategic business plan.
By creating a well-conceived and comprehensive business plan, you will undoubtedly increase your chances of obtaining borrowing, grant funding and planning consent. It gives third parties a real insight into what you can realistically achieve, how you are going to achieve it and that you have the intent and ability to get there.
Once you have made the decision to convert a building, thought must then be given to how this might materialise in practice, with regards to the access, site topography, a building’s capability of conversion, services (power, water, telecommunications, drainage, etc), to name but a few.
Furthermore, it is likely that additional and enhanced infrastructure will be required, which can have a significant impact on projected budgets. For example, you must consider the ability to access high speed broadband with rural office units, as it will always be a priority for any perspective tenant and has the potential to dictate the achievable rent levels.
It is also important to consider whether the new venture might conflict with existing uses on site.
There are various permitted development routes for dwellings and alternative uses available at present, including, Class Q (farm buildings to residential), Class P (storage & distribution to residential), Class PA (workshops to residential), and Class R (farm buildings to flexible commercial uses).
In addition, farm buildings may also be suitable for conversion and reuse, under full planning for commercial and residential purposes. The key considerations of this process relate to whether the proposed use is sustainable, commensurate to its surroundings and will cause significant harm to surrounding neighbourhood amenity. For example, a conversion must be in keeping with its surroundings and sensitively designed, especially when within proximity to a listed building.
It is important to note that the full planning process is becoming increasingly expensive, with Local Authority department cuts now placing the onus on the applicant to provide third party surveys. This regularly sees, ecology, highways, archaeology, arboriculture, Heritage and Landscape, and Visual Impact Assessments being required to simply validate an application; which can bring additional cost burdens to any scheme. However, by using the permitted development approach, you can often bypass a number of these consultations, which often results in a simplified and more cost-effective process.
Taxation and business structure
Any changes in the makeup and functioning of either your business or asset have the potential to impact on your tax status, and we would always recommend that you look to seek concise tax advice from a suitably qualified professional before putting any of your plans into action.
Ensuring that your business and assets are held and maintained within the correct structure, can play an important role in managing your tax liability, particularly with regard to Inheritance Tax (IHT) and Capital Gains Tax (CGT).
With the viability and returns of conventional farming enterprises becoming increasing unpredictable, the issue of succession within family farming businesses is inevitably becoming a challenge to manage and plan towards.
Two fundamental issues of succession are, i) how can the farm business financially support the next generation in addition to their parents and potentially grandparents and ii) where are the next generation going to live?
The re-use of existing farm buildings which are no longer contributing as effectively to the core farming operation, provides a significant opportunity to maximise the productivity of on farm assets, and to create more consistent alternative income streams. The conversion, or change of use, of agricultural buildings to residential units can provide the next generation with onsite accommodation.
This canter through the various issues for landowners to consider when looking to convert and reuse existing farm buildings is by no means exhaustive, but we hope has provided a synopsis of the key factors, namely being the cost and timeframe of any redevelopment works, ensuring the end product is in keeping with the existing use, and ultimately that it provides an income and yield worth this significant capital expenditure. Make sure all of these aspects have been factored into the scheme, and the end product will be worth every penny spent.