Tony Hales, managing director of Stadia Trustees, puts forward the case for including farmland in your clients’ SIPPs.

Farmland is an ‘alternative’ investment that has become increasingly attractive of late. However, despite its recent strong performance, to many investors it is a poorly understood asset class.

There are many reasons why a form of farmland should feature in portfolios, most notably, the dramatic rise in world food prices, coupled with the availability of land decreasing through urbanisation, leading to rising farmland values. With a growing world population, rising consumer culture in the east and search for clean energy sources, experts are predicting that this trend is set to continue.

During the recession, land has been stable and resilient compared to other markets, and its solid, long-term fundamental features represent a secure and lasting component of a well-designed portfolio.

What many investors like about farmland is that it is a physical asset and has historically been a proven hedge against inflation, while providing uncorrelated returns, making it an important element in a selection of diversified investments.

In the UK, outside of a pension scheme, investment returns should be subject to capital gains tax on any increase in capital value. This is not applied to investments inside a pension scheme, and for this reason farmland is often viewed attractively for UK SIPPs.

Crop production

Farmland also has the advantage of generating an annual income through crop production, making it an even more appealing investment. The growing popularity of investing in farmland is shown through the increase in pension fund capital allocated to agriculture which has risen considerably over the last ten years.

Of course, like all investments, farmland has its own individual risks to consider, if investing in farmland abroad there are currency risks, market volatility concerns, political factors and potential climate uncertainty.

It is important that proper due diligence procedures are carried out with all farmland investments. The purpose of these studies is to provide investors with a detailed and comprehensive insight into potential investments.

At Stadia Trustees, we independently undertake strict due diligence tests on all unregulated investments on SIPPWISE, our investment directory offering a wide choice of investment products [www.sippwise.com]. One such case study is JPT Capital Agrifund in Australia, which Stadia visited at the beginning of Q4 2011. Using this example I will explain how a due diligence report in regards to farmland works.