But NFU Mutual warned farmers to plan carefully to make diversification a success and avoid tax pitfalls
Farmers have been warned to plan carefully as more look to diversification as they move to make their businesses more sustainable without subsidy.
UK farmers with diversified businesses jumped in 2021 to 37 per cent from 31 per cent in 2020 with the percentage of business turnover from non-farming activity increasing from 11 per cent to 16 per cent, according to an NFU Mutual survey of 1,652 farmers.
11 per cent of those yet to diversify were planning to over the next five years.
For those who did not plan to diversify, the main reason was wanting to concentrate on farming and making the best use of land and skillsets with 22 per cent saying they felt they were too old to start a new venture.
Chris Walsh, NFU Mutual farm specialist, said farmers were increasingly concerned about the long-term sustainability of their businesses alongside the prospect of being undercut in trade deals.
With the UK committed to reducing carbon emissions, N Walsh said farmers saw renewable energy as a long-term investment win.
“For others, particularly in coastal areas or near beauty spots, the rush for staycations during the COVID-19 pandemic and the popularity of glamping is making tourism a very attractive proposition,” he said.
“Farmers always have to be ready to adapt to changing markets, but the huge changes we are now seeing to farm support mean farmers are now having to take a very hard look at their businesses and take tough decisions on the future.”
But there were potential pitfalls, with NFU Mutual highlighting Inheritance Tax.
Sean McCann, chartered financial planner at NFU Mutual, said: “Many family farms benefit from Agricultural Property Relief (APR), which can reduce or eliminate inheritance tax on farm land and buildings.
“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 will normally mean that APR is lost and could lead to a larger inheritance tax bill.”
However, he added in some cases diversifications may qualify for Business Property Relief.