AHA land swap fair?

[incognito profile]

First off I am a long term member of tff, I have a lot of respect for the members and the wealth of knowledge that I've gleaned from here is vast, but due to the nature of this subject I've decided to post this with some anonymity.

we farm just over 250acres of mixed farming in Shropshire, 170ac of which, is on an aha, I gained the tenancy over ten years ago, land only, as the second generation, with my father. He took the farm on in partnership with his father 1968.

We were approached 2 years ago with news the landlord wanted to sell it off, the agent made noises that we could end up with a new landlord who may, like all new brushes, want to sweep clean and cause us hassle, so as per the terms we were offered the option to buy the land, the land was valued at 9k/acre and we were offered it with a 30% discount. leaving us with just over a million to find. With rising costs and bps diminishing we decided this wasn't for us.

After reading the experience's of other members on TFF I got our agent to proposed a land swap, the land is in two blocks anyway and after some negotiation it was suggested if we relinquish our tenancy on 107ac we will receive 63acres. The 63ac adjoins our farmstead and land, so it will add tremendous value to what we already own.

Myself and my agent still felt it wasn't quite there, There is one 15ac field that sits alone so we pushed for this to be included, the response has been that it cannot just be included as were getting enough, but it could be bought at a 30% discounted rate so £95k not content we offered £50k and its looking likely we will meet somewhere in the middle.

So in basic terms we will be relinquishing a tenancy on 170acre. They will have 92ac to sell on the open market and we'd be given 63acres as compensation, plus 15acres at 75k.

Obviously it will mean some big changes to our extensive mixed way of farming, but it maybe a better job and less work, losing the sheep and arable to concentrate solely on the dairy side.

What do the collective think?

 

[hally]

Take advice and be careful not to put your AHA at risk, few cases around here of land lords offering to enlarge a farm by offering the tenant more land but it must put the whole unit on FBT, which after a short period means they can kick you off with no compensation.

 

[teslacoils]

So the landlord wanted to sell at nine grand and acre and offered it to you for £6k, which would have netted them the million. You get discount on the whole block. Aha ends as you own the land.

The new proposal is that the aha ends but instead of the lot you get land, they get 92ac to sell (830k) and the proceeds of selling you a small field which makes it up to the million.

I'd snap that up if it ajoins a yard you own. Because you've turned a tenancy into debt free land that you can use as security for whatever you want in the future. Check accountant etc for the best way to maximise any entrepreneurs reliefs etc.

 

[Northdowns Martin]

I think you have negotiated yourself in a comfortable position. Are you the sole inheritor of farm ie. no siblings to divide with? 78ac at roughly £1000 each is good value. Plus as you point out the marriage of land and farm buildings will be greatly increase the overal value. Who knows a new owner of the 93ac may be interested in renting to you.

 

[Chimera]

Buy it all at £6k and push on. If I was offered land at 30% discount my bank manager would be in my kitchen 8am the next morning.
Easiest day's work you'll ever do.

 

[DRC]

I would speak to the TFA , as I’d be wary of loosing your succession on the new land . I read it as a you will still be renting the 63 acres , not given it as compo.

 

[teslacoils]

I think the idea is that the tenancy ends in any case - it's just the nature of the compensation.

 

[Northdowns Martin]

I would speak to the TFA , as I’d be wary of loosing your succession on the new land . I read it as a you will still be renting the 63 acres , not given it as compo.

I read the opposite, giving up AHA tenancy on 92ac and receiving 63ac as compensation plus opportunity to puchase a further 15ac at discount

 

[teslacoils]

The aha tennsncy sounds like it's on 170ac and the OP owns 80ac already. They would quit the aha in return for 78ac for a cost of 75k. This land adjoins their owned holding.

 

[incognito profile]

Take advice and be careful not to put your AHA at risk, few cases around here of land lords offering to enlarge a farm by offering the tenant more land but it must put the whole unit on FBT, which after a short period means they can kick you off with no compensation.

I would speak to the TFA , as I’d be wary of loosing your succession on the new land . I read it as a you will still be renting the 63 acres , not given it as compo.

perhaps Ive confused things by calling it a swap. The aha tenancy will end on all of the 170ac i currently farm, 78acres of it I will own, once the deal is done. The other 92ac will become vacant possession for the landlords to do as they wish.

So the landlord wanted to sell at nine grand and acre and offered it to you for £6k, which would have netted them the million. You get discount on the whole block. Aha ends as you own the land.

The new proposal is that the aha ends but instead of the lot you get land, they get 92ac to sell (830k) and the proceeds of selling you a small field which makes it up to the million.

I'd snap that up if it ajoins a yard you own. Because you've turned a tenancy into debt free land that you can use as security for whatever you want in the future. Check accountant etc for the best way to maximise any entrepreneurs reliefs etc.

Your correct, and you've summed it up better than my babbling.

I approached our accountant at the outset and he said there will be "roll over relief" but if I ever sold the land Ive been given, it would incur a higher capital gains tax.

 

[teslacoils]

perhaps Ive confused things by calling it a swap. The aha tenancy will end on all of the 170ac i currently farm, 78acres of it I will own, once the deal is done. The other 92ac will become vacant possession for the landlords to do as they wish.

Your correct, and you've summed it up better than my babbling.

I approached our accountant at the outset and he said there will be "roll over relief" but if I ever sold the land Ive been given, it would incur a higher capital gains tax.

Accountant. Depending on your family structure, and debt, you may find if entrepreneurs relief is applicable you can pay the tax at a low effective rate, and buy the land to reset the rollover base price. But i expect this will depend how the enterprise is structured.

I'd suggest that, while the LL may wish to sell the unencumbered land right away, that they may consider letting it to you on a year by year fbt, even if this is at quite a keen rent, to keep it in good order for sale. Why do this? Well, it keeps you in with them; it tests a business to see if it can pay a market rent; and if you win a million quid on the lottery then you're in pole position. Yeah the rent will be higher but you've just been handed half a million quid of land so you need to spend it somehow - many rich folk enjoy farming as a way to become slightly less rich.

 

[teslacoils]

They may want to farm it in hand with you as contractor

 

[e3120]

I think that sounds a decent position. You would get the benefit of the discount on the lot but taking it as debt-free land. If the million-debt option isn't for you, this is a fair alternative.

The 15ac to purchase is also sensible as it stretches you a bit. The only question I would ask is whether your successor might curse you for not pushing the boat out.

 

[jackrussell101]

Definitely try and push them as much as you can on that extra 15 acres, your in an incredibly strong position, and it sounds as though they are keen to free up some cash for themselves, unless they have your cooperation on a AHA they are in a very limited position, especially as you're only the second generation.

 

[teslacoils]

Thing is, at today's cost of money, AHA land is making decent money. It sounds pretty fair. There's pushing for more, and there's trying to get every last penny. I'd rather keep on good terms. Maybe dig a bit to see what their intentions are to try and get a short term deal?

 

[DRC]

perhaps Ive confused things by calling it a swap. The aha tenancy will end on all of the 170ac i currently farm, 78acres of it I will own, once the deal is done. The other 92ac will become vacant possession for the landlords to do as they wish.

Your correct, and you've summed it up better than my babbling.

I approached our accountant at the outset and he said there will be "roll over relief" but if I ever sold the land Ive been given, it would incur a higher capital gains tax.

Oh I see now . That sounds better.
not sure where @teslacoils is getting the entrepreneurs relief from, unless you were retiring ?

 

[betweenthelines]

Buy it all at £6k and push on. If I was offered land at 30% discount my bank manager would be in my kitchen 8am the next morning.
Easiest day's work you'll ever do.

Got to agree with the above.

Buy the lot!

Just pay the interest for a couple of years then sell your current place and what you buy. You'll then get the benefit of the increase in value of your current place having another 60 acres and the discount on the other 100 acres. Then you will be able to buy the type of place you've always dreamt of.

 

[teslacoils]

Oh I see now . That sounds better.
not sure where @teslacoils is getting the entrepreneurs relief from, unless you were retiring ?

You don't have to retire. It's called business asset disposal relief now. And would depend how your business is structured. I'm not an accountant. But potentially the op says the tennancy is held by himself and dad. I'm sure noone wants to pay any tax, but maybe able to reset it at a very low rate. Especially if there's any future hope value on the new land. Avoids "pregnant gain" and you'll never pay tax at an effective 9 percent ever again. But accountant should sort it for you.

 

[Max Headroom]

AHA land normally trades at a 50% discount to open market farmland. A no brainer to buy the lot.

 

[Salopian_Will]

AHA land normally trades at a 50% discount to open market farmland. A no brainer to buy the lot.

It very rarely trades at that.

First off I am a long term member of tff, I have a lot of respect for the members and the wealth of knowledge that I've gleaned from here is vast, but due to the nature of this subject I've decided to post this with some anonymity.

we farm just over 250acres of mixed farming in Shropshire, 170ac of which, is on an aha, I gained the tenancy over ten years ago, land only, as the second generation, with my father. He took the farm on in partnership with his father 1968.

We were approached 2 years ago with news the landlord wanted to sell it off, the agent made noises that we could end up with a new landlord who may, like all new brushes, want to sweep clean and cause us hassle, so as per the terms we were offered the option to buy the land, the land was valued at 9k/acre and we were offered it with a 30% discount. leaving us with just over a million to find. With rising costs and bps diminishing we decided this wasn't for us.

After reading the experience's of other members on TFF I got our agent to proposed a land swap, the land is in two blocks anyway and after some negotiation it was suggested if we relinquish our tenancy on 107ac we will receive 63acres. The 63ac adjoins our farmstead and land, so it will add tremendous value to what we already own.

Myself and my agent still felt it wasn't quite there, There is one 15ac field that sits alone so we pushed for this to be included, the response has been that it cannot just be included as were getting enough, but it could be bought at a 30% discounted rate so £95k not content we offered £50k and its looking likely we will meet somewhere in the middle.

So in basic terms we will be relinquishing a tenancy on 170acre. They will have 92ac to sell on the open market and we'd be given 63acres as compensation, plus 15acres at 75k.

Obviously it will mean some big changes to our extensive mixed way of farming, but it maybe a better job and less work, losing the sheep and arable to concentrate solely on the dairy side.

What do the collective think?

There are a lot of twists and turns in any negotiation and no two circumstances can be compared like for like. HOWEVER, my back of envelope maths works out that you are being given £627,000 for your tenancy, or 40% of the freehold value, which I think is a good deal in anyone's book.

I would shake hands on the deal so it is done and dusted, but given that you have a good chunk extra owned without mortgage, it must be worth a conversation with the bank to see how much of the remaining 63 acres they will support @ £9k/acre, especially as you can get it off market.