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1 min read
13 Feb

Farms are a valuable legacy that can be passed down from one generation to the next. However, gifting a farm to the next generation can come with certain costs and challenges, especially when the recipient is not a farmer themselves. In this blog, we will explore the financial implications of gifting a farm to the next generation, and how it can impact the business and its future success.

Let's consider a scenario where a 440-acre farm is worth £10.8k per acre, totaling £4,752,000. If one sibling is a farmer and the other is not, the farming sibling will need to buy out the other, which will cost £2,376,000. To finance this buyout, the farming sibling may need to take out a 20-year loan at a market cost of 7.1%, which would result in a total cost of £5,055,358 after accounting for interest and repayment of the loan.

In addition to this, the parents of the siblings may have pensions that need to be paid, which can further add to the cost of maintaining the farm. For example, paying pensions to retired partners at £30k for 20 years would cost £600,000.

It's important to note that this equation does not take into account the capital gains tax, stamp duty, or the fees associated with managing the transaction or setting up the bank facility. These additional costs can significantly increase the overall cost of gifting a farm to the next generation.

This example would mean that for each acre of the farm there would be an annual cost of £574.  

In conclusion, gifting a farm to the next generation can come with significant financial implications, especially if the recipient is not a farmer. The costs of financing the farm's buyout, paying pensions, and accounting for additional fees can add up, making it crucial to carefully consider the financial impact of gifting a farm before making a decision. To ensure the future success of the farm, it's essential to have a thorough understanding of the costs involved and to plan accordingly.

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