Rural land

The past year can be defined by a yearning for certainty.

The agricultural industry hoped post-election political stability would bring with it increased commitment to domestic food production and investment in schemes that help account for income lost from the phase out of the Basic Payment Scheme (BPS). While we speculated on changes to Agricultural Property Relief (APR) from Inheritance Tax (IHT) in our outlook for 2024, we considered it unlikely due to comments made by political parties in anticipation of a 2024 general election. Understandably, the reaction to the changes announced in the Autumn Budget has been one of both disappointment and concern. It has been a knock to wider industry sentiment, with farmers now even more sceptical of the new government’s approach to the sector.

While the full impact of the changes on land values remains unclear, we do not anticipate a significant market reaction ahead of April 2026 (when the change is effective). For high-net-worth individuals with alternative incomes, in particular, the prospect of an IHT bill does not deter investment, nor do we expect quick decisions to sell. Furthermore, there are reasons to be optimistic about the year ahead. Economic conditions have improved, with a decline in inflationary pressures evident in reduced agricultural input costs (compared to their record highs two years ago) and lower interest rates. Both factors offer relief to profit margins and could encourage market activity.

There is also a diverse pool of buyers who we expect to remain active in the coming year. Demand continues from farming businesses purchasing at scale, particularly where infrastructure is already in place and capital investment is not required, or there are existing income streams. Rollover buyers, who will benefit from Business Asset Rollover Relief so long as they reinvest within 3 years, continue to be a key source of demand. Many of these buyers have sold land for development purposes and have cash ready to reinvest but are yet to find a suitable investment. Also, as private natural capital markets (notably the biodiversity net gain market) continue to develop, some regions are seeing increased interest from ‘green’ investors.

New supply has increased slightly over the past year which has been largely attributable to an increase in debt-driven sales, with farmers looking to liquidate assets either in part or in whole, or farmers retiring with a lack of successors. While the pipeline for new launches in the new year is healthy, we do not anticipate an overall oversupply. As such, we expect the market to remain well-balanced with demand meeting supply for most assets. That said, a more polarised market has been emerging, with both smaller and larger assets in good locations generally performing well and exceeding guide prices, while other parcels may have to re-evaluate their pricing.

We forecast that both average arable and pasture land values will remain stable in 2025 as farmers navigate what the new regime means for them. Nonetheless, activity is expected to continue at sufficient levels to maintain supply and demand dynamics.