FARMERS who have developed solar, wind, hydro or anaerobic digestion projects on their land are being offered the option of releasing a capital lump sum in return for granting the head lease under a new financial arrangement put together by Savills.
At a time of financial challenges for the rural sector, Savills has partnered with Horus Capital to offer farmers and landowners a deal to extract investment capital from green energy projects with an minimum rental income of £20,000.
Farmers may be be looking to release capital to enable them to buy additional land, to re-invest in their existing land, to buy new machinery or, or to start a completely new rural enterprise such as property development, without taking out a bank loan.
According to Nick Green, Savills head of Renewable Energy in Scotland, the new service allows farmers flexibility to develop their rural business, while retaining ownership of their land: “With commodity prices falling, margins reducing, banks becoming more cautious with regard to lending and subsidies under threat, entrepreneurial farmers may wish to think outside the box when it comes to sourcing finance.
“With this scheme, they will receive a capital sum, in return for granting the head lease on their land. Only the base rent is taken by Horus with all other contract terms, originally agreed between landowner and tenant, remaining in place, including any turnover income paid on top of base rent," explained Mr Green.
“Receiving a cash lump sum, instead of a smaller yearly rental income, will open up new reinvestment opportunities. But importantly, the farmer retains ownership of his land. Farmers also retain some annual income in addition to the upfront capital payment and the scheme is flexible enough to allow famers to only capitalise part of their renewables project.
“By taking rental income up front, the risk to landowners is reduced as it removes the possibility of the renewable tenant breaking or defaulting on the lease and, unlike a bank loan, assets are protected," he said. "The scheme also protects farmers and landowners against the impacts of further government intervention in the renewable sector.”
Money is paid in full once the lease is signed and will be subject to income and/or capital gains tax depending on the lease period and terms – the shorter the term, the more income tax is due. For example, tax on the premium paid for a 25-year lease would roughly be split equally between income tax and CGT.
Mr Green added that there were many ways to reduce tax liability, either by offsetting against previous years’ trading losses, or by reinvesting all or part of the money in another asset that qualifies for CGT Business Asset Rollover Relief. This can be backdated 12 months or carried forward for up to three years.