The future is rosé!
17 January 2024
In this article, we review some of the commercial consequences when diversifying a farm business or rural estate.
With the impact from the cost of living, high inflation, challenging margins and the continued hangover from Brexit, I think we can all agree that it’s a tough time to be in farming. It is not surprising that around 33% of farmers have already diversified their farms as they look to commercialise and secure another income stream which can support what they enjoy most – farming.
It can appear rather daunting when considering the options for diversification. However, as Britain’s climate continues to warm, many farms and estates are deciding to pursue viticulture and open their own vineyards. With many champagne houses, including Taittinger and Pommery, crossing the Channel to pursue growing sparkling wine on British soil, it is not surprising that many farmers may view this diversification as a foolproof long-term investment.
Owning a winery may seem like an exciting or romantic family business but that doesn’t mean it’s an easy job. Like the roots provide necessary nutrients and stability to the vines, this is the same for the legal structure of your farming business when implementing your new venture.
Most farming businesses are structured using a traditional means such as partnerships governed by the Partnership Act 1890, a limited partnership as per the Limited Partnerships Act 1907 or a limited liability partnership (LLP) governed by the Limited Liability Partnerships Act 2000. Whilst most farms fall into the first category, we are increasingly seeing more of the other two as well as many choosing to incorporate limited companies.
It takes between two and three years for a grapevine to mature and produce grapes, therefore if you’re looking to enter viticulture or expand your existing winery it may be simplest for the farm partnership to fund the initial investment whilst the vines mature, and then consider how to restructure. It is no doubt that the creation of a vineyard will require substantial capital in its early years, therefore tax consequences will dictate, to an extent, how the money is injected into the business. Going forward it is wise to contemplate whether this investment should be debt or equity, and whether outside investment can be used to catapult your investment to new heights.
As you creep towards harvest it is wise to consider how to restructure as there will likely be many legal, tax and accounting concerns which can be dealt with simultaneously. Once your vineyard starts to contract with third parties to deal with the outsourcing of the production and bottling of the wine it is worth considering whether the vineyard should be set up as a separate legal entity so that it is independent from the farm business or rural estate. Further, should profits start to roll in and you consider having the winery separate from the farm business this will help you take advantage of available accounting and tax breaks, as well as providing a passive income stream should you decide to lease land or machinery to the new business.
Therefore, whilst each scenario into viticulture will differ, it is beneficial to consider the various structural routes your business can take to enable the exploitation of available exemptions and tax breaks which can help you weather the storm, or drought, should it come your way.
For further information in relation to Viticulture, please contact a member of the Birketts Viticulture Team.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at January 2024.