While prices for rural land soared 25% in 2004, they fell 4.6% last year, according to new figures from the Royal Institute of Chartered Surveyors (Rics).
The average cost of a hectare of farmland (about 2.5 acres) fell from £9,820 at the end of 2004 to £9,370 at the end of last year.
Sue Steer at Rics said: “Rural land is playing catch-up with the national property market.”
Farmland has become increasingly popular with families wanting to escape urban life in favour of rural settings. Buyers who are not farmers currently outnumber farmers and agribusinesses.
While the price falls are bad news for people who have already downshifted, they will be welcomed by those thinking of moving to the countryside.
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As well as the lifestyle advantages of buying a farm, there are also tax perks. The first £275,000 of your estate is IHT-free, but anything above that is taxed at 40%. However, agricultural land qualifies for 100% business property relief, which means it could fall out of your estate for IHT purposes. Up to a third of the value of any property on the farmland could be exempt too.
To qualify for the IHT exemption, the land must be actively farmed. If you rent it to a farmer it will fall outside your estate after seven years, but you will only get 100% relief if your executors get the land back within two years. If this is difficult because of the terms of the lease, only 50% of the land will be exempt.
If you farm the land yourself, it will qualify for 100% relief.
There are also potential income-tax implications if you buy a farm that you plan to run as a business. You can set your mortgage interest against any profits, which will reduce the amount of income tax you pay. You get no tax relief on the mortgage interest on your home, however, so you will need to have evidence that the money you have borrowed has been used to buy the farmland.