Have you had the smallholding dream? I can tell you that you are not the only one.

Many “hobby farmers” or “lifestylers”, – City workers and canny investors, are using their capital to chase the dream of agriculture and buying farmland, and non-farming buyers make up a much larger proportion of sales than ever before.

This has contributed to the recent escalation in the rise of farmland prices, as agricultural land continues to beat both commercial property and the residential market.

During the past six months arable land has rocketed in value by 8%, and by 13% year to date (July 2010) according the Knight Frank Farmland Index, with most experts believing prices will continue to rise for at least seven years.

The price of agricultural land rose by 19.7% for the twelve months to July, and continued interest from institutional funds looking to invest in agriculture by purchasing vast tracts of farmland and leasing it to commercial farmers is adding to the upward pressure.

Many savvy investors are now looking to swap faltering residential and commercial buy to let investments, and invest in a piece of good quality agricultural land instead. Some have been frightened off from the stock market due to the ongoing volatility and lack of visibility in the market and are now also investing in agriculture for a more stable income and positive growth.

These high-net-worth investors pursuing the farmland dream are not alone in their hunt to acquire and invest in farmland. Values are also feeling upward pressure as food prices increase at a time when there is a sharp decrease in the amount of agricultural land for sale.

Commodity prices for wheat and other cereals are at a 40 year low but peaked in 2008. According to leading finance broker Savills Private Finance, the actual acreage being advertised publicly has fallen from around 600,000 acres in the 1960s down to around 125,000 acres today.

There is still a lack of supply, although we source our assets from land owning farmers that want to become tenant farmers because mortgage payments are too high, so we get access to farmland that is not on the open market.

There are of course other options for investors looking to profit from the boom.

There are a number of agriculture investment funds to consider for those wishing to invest in farmland and still qualify for inheritance tax (IHT) relief.

Generally speaking, minimum investment levels are £20,000 with various modes of investment and offer the option to invest through a self-invested personal pension or offshore bond as well as with liquid capital.

As with any AIM stock, only investors choosing to hold the property for two years or more will qualify for the IHT relief.

In Europe, arable land is already worth twice that of land in Britain in places like Denmark and Ireland. Investors from these countries are now looking to the UK to cash in on the boom.

When compared to our closest agricultural rivals such as Ireland, UK arable land is still very cheap and has the margin to expand in value by 100%, I think personally that we are in for a period of prolonged growth, imagine if agricultural land values doubled by 2020, we would then be able to say that they are only priced as Irish farmland was ten years ago.

How is farmland treated by the Tax Man?

Land that is actively farmed could qualify for 100% relief from death duty, which means that there would be no IHT liability.

If the land is being farmed by the owner, you would qualify for 100% relief on the land after 24 months. Equally, the same rule applies if you have a tenant farmer do the work, as long as you have a profit share arrangement. If you lease the land to a commercial farmer, then you would qualify after seven years.