This week’s news that armchair farmers are harvesting huge rewards from European agricultural subsidies has focused attention on rural investment. The long-delayed revamp of subsidies certainly seems to have created opportunities for investors to claim EU money.

The new payments can be detached from one piece of land, sold on and used against somewhere cheaper. In one case cited, astute investors could return five times their money by 2012 without needing to go near a field.

Simon Ward, of Increment, a specialist agricultural consultancy, agrees that such opportunities still exist in Scotland. It is, however, harder to make the sums add up in England, where land is typically £2,500 to £3,000 an acre and the subsidy averages about £70 a year. “You can buy the subsidy with or without the land, but if you then buy or rent land, it will generally already reflect the average subsidy,” he says.

Whatever the economic contortions created by the EU, land still inspires a confidence unmatched by more ephemeral investments. Andrew Slack, of Grant Thornton, the accountant, says: “It’s there for ever. It’s a store of wealth.” And a rising one. Ian Bailey, of Savills, the estate agency, says farm land has been a good investment over the past three years, with an average rise of 50 per cent over that period.

Farmers have made something of a comeback among buyers recently, although “life-style” farmers backed by City bonuses and investors — notably the Danes — have also been prominent. But do not expect farming losses to shelter income from elsewhere — once a big draw for City types seeking country estates. Mike Warburton, senior tax partner at Grant Thornton, says that tax is no longer the prime motivation of wealthy clients who want to invest in farmland.

This is just as well, as the Chancellor’s latest move to bring the tax-shy to book may catch some gentleman farmers. This month Gordon Brown restricted “sideways loss relief” in partnerships to those working more than ten hours a week in the business. Mr Slack says: “My understanding is that if you are in a farming partnership and involved for less than ten hours a week, then any losses greater than £25,000 can’t be offset against income from elsewhere.”

So-called hobby farmers have long been a target of governments aiming to close tax loopholes, but Mr Slack says that, with the right advice, it is still possible to take advantage of special tax breaks. The two principal benefits are business asset taper relief and agricultural property relief.

The first means that capital gains tax on agricultural assets should be reduced to 10 per cent after two years of ownership. The latter provides for exemption from inheritance tax after the same period, even if recent court cases have restricted relief on dwelling houses to those of working farmers.

While farmland has always held appeal, it is only recently that forestry has come back into fashion. In the 1980s forestry as a tax shelter acquired a bad name after it became associated with environmental devastation in the North of Scotland, prompting the Chancellor, then Nigel Lawson, to close the loophole that gave rise to its genesis.

Now, though, there are signs that owning trees is making a comeback. Alastair Sandels, regional director of forestry at Fountains plc, a manager and adviser, says: “The market for forestry has certainly picked up. There is a lot of demand for forestry property. It has probably not been so high for ten years.”

Figures from Investment Property Databank (IPD), the specialist information group, show that total returns have accelerated from the dark years around the turn of the decade. The 14.4 per cent recorded for 2005, the latest year for which data is available, is respectable, if not quite up to that year’s racy 21 per cent return on the FTSE 100.

Ironically, it is environmental concerns that are, in part, fuelling this new demand. Mr Sandels says that the use of timber as a renewable fuel is making it an increasingly marketable commodity.

Another potential benefit for investors is that forestry is seen as a hedge against the stock market. Although the IPD figures show a correlation with equity returns over the past five years, the swings have been less pronounced.

As for tax, the main incentive is now business property relief, which means that, like agricultural assets, forests escape inheritance tax if they are held for at least two years.

In addition, any profits from forestry are not subject to tax.

But anyone looking at forestry or farming should not expect to make their fortune. Experts agree that neither is likely to make an annual trading return of more than 3 per cent on your capital. So enjoy the view and clean air, but expect most of the financial benefits to fall to your heirs.

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