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Top Tips - how to enter the business of share farming

Insights
Farming needs smart, innovative land management techniques which provide exciting, new opportunities. Ben Pike examines one such option.
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Need a stepping stone into agriculture? Why not try share farming? #GetIn2Ag

Have you considered share farming as a viable stepping stone in to agriculture? #GetIn2Ag

Top tips for setting up a share farming agreement! #GetIn2Ag

There are few barriers harder to overcome for farming’s new entrants than the challenge of securing land.

 

With the average UK acre now costing more than £10,000, young farmers are seeking alternative ways to get a foot on the farming ladder.

 

Similarly, farming is renowned for being an industry from which few rarely retire.

 

Share farming has a simple enough formula; a farmer (often referred to as the owner) with land and fixed equipment enters into an agreement with another farmer (operator) who provides labour and machinery. The profit from the agreement is split between the two or an alternative compromise is reached.

 

"You can start with pretty much nothing"

 

The CLA’s policy director, Christopher Price, says: “A ballpark figure which you need to start a stock farm with is about £100,000, but the great thing about share farming is you can start with pretty much nothing and, as your income increases, you can acquire a bigger share of the business.

 

“The hardest part of the process is the conversation when you work out what you are bringing into the business.

 

“You have to put an annual value to each feature the owner and operator brings. This gives you a figure as to how much each is contributing, which you translate into percentages, splitting the proceeds accordingly.”

 

Share farming has been criticised by the Tenant Farmers Association as a way for farmers to retain certain agricultural tax reliefs without actively farming the land – a notion dismissed by the CLA.

 

But with benefits to both parties, it is becoming an attractive proposition in today’s changing market.

 

 

Top Tips!

How to start in a share farming agreement

 

When starting any new business venture it is important to set out a clear plan, and share farming is no different – it has to be approached with the right attitude by both parties.

 

Rob Selley, of agricultural accountants A.C. Mole and Sons, Taunton, advises farmers consider the following five points when looking at how share farming can work for them.

Write the plan down

Setting up a robust agreement for what each party is bringing to the table in the venture is crucial.

 

It should also set out exactly what is expected of the landowner and the operator.

 

A specialist land agent or lawyer can assist with drawing up the document.

Dividing up a share

Typically, the owner provides land, buildings, fixed equipment, and any significant property repairs. The operator provides labour, moveable plant and machinery and general management.

 

The share of profits is then based on each party’s contribution to the business.

Keep things separate

Both parties must keep separate bank accounts and VAT registrations.

 

It is vital the agreement is not seen as a partnership – as you could then potentially become liable for each other’s debts – or a tenancy, as this may risk losing Inheritance Tax and Capital Gains Tax reliefs.

Staying active

Both the owner and operator need to prepare their own set of accounts and the owner must be active within the business.

 

Meeting notes and action points should be minuted to show both are involved in the day-to-day management and decision-making.

Business structure

It is important for the owner and the operator to carefully consider their circumstances and assess what the arrangement will require from them before entering into a share farming plan.

 

As ever, timely professional advice is essential before embarking on a new business venture.

Ask the expert...

We asked a financial adviser the questions on everyone's lips in regards to share farming.

 

Click here to see what he said.

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