Land & Forestry Investment
The land and commercial forestry market has continued to enjoy a bull run on the back of increasing demand within the UK and Ireland. This trend is likely to continue as we see greater value being put on our natural resources to provide sustainable food and timber supplies and to help us to acheive net zero targets.
Woodland expansion onto agricultural land has significantly increased the value of plantable land in recent years. Natural Capital is another form of value that is developing and this, along with Carbon Sequestration schemes for woodland peatland and native habitats will contribute to underpinning the economic value and demand for ownership of land-based assets.
Targets for woodland expansion are increasing within the UK and Ireland, creating significant interest in land suitable for tree planting projects. Depending upon the location, scale and type of land, there are attractive establishment grants available for new woodland creation schemes. Helping to offset the initial capital investment in the land and establishment costs to generate a healthy return on the investment.
Further funding is also available through the sale of carbon credits via the Woodland Carbon Code. http://www.woodlandcarboncode.org.uk/ This provides a formal framework for verifying and validating woodland carbon sequestration schemes, thereby allowing the owner to sell the carbon credits to generate additional income from an approved project, subject to meeting the required criteria.
Strangely a lot of planting land still tends to be sold off market by negotiated sale. However, land is also available in the open market and in both cases it can take time to source and acquire. If investing for woodland establishment, it is vital that the land is appraised for its suitability with a survey to identify any issues that may restrict or prevent the development of a planting project.
The commercial forestry market in the UK trades well in excess of £100 Million in forestry assets each year on the open market. Off market trading also takes place and due to the private nature of these negotiated sales, the actual level of this value is hard to quantify. Most of the trading takes place within Scotland due to the scale of forest cover here. However, the English, Irish and Welsh markets also have a healthy trade in forestry assets each year.
If investing in a forest or land it is important to get a good understanding of how the asset is managed and its potential to generate a return on your investment. This requires an evaluation of the crop and underlying land to assess the existing timber volume, growth rates and the capital that may be required to manage the forest or land as well as identifying opportunities for adding value and ways to acheive the best return on your investment.
Surveys and property appraisals can be carried out to all levels, depending upon your requirements, including the use of drones for aerial surveys and digital mapping. If you require advice on a specific property or some general advice before investing, do get in contact to discuss your objectives and the options open to you.
Timber measurement can be undertaken to establish the growing volume of timber and assess the Yield Class of your growing crop. If you are planning to invest in a forest or sell standing timber in a property you own, this is vital to establish the value of the crop you plan to buy or sell. If you would like further advice on this or would like a quotation, please get in contact.
If you are considering buying or selling a property or looking for legal advice and haven’t already engaged with a solicitor, it is important to seek the services of a suitably qualified solicitor who is experienced in land and forestry law. If you require advice on which law firms regularly practice in this field, please contact me.
There are several specialist woodland insurance brokers and forest management companies providing insurance services within the UK and Ireland. Policies generally provide cover against the risk of fire and storm damage, as well as public liability cover which is essential if owning a property. Policy premiums are normally based upon the level of value, type of cover and risk.
The tax benefits of owning commercial woodland are set out below and for guidance only. To qualify for most tax benefits it is important to prove that the woodland is being managed as a business asset for commercial gain – known as commerciality. In much the same way as you would manage any other business it is important to maintain annual records. This summary of the current tax benefits and rates is provided for general information and should not be used to replace the professional advice of a financial advisor or accountant and investors should consult their own financial advisor or accountant before investing in land or woodland. The tax rules in the Republic of Ireland are slightly different and please seek professional tax advice specific to Ireland.
There is no income or corporation tax on the occupation of, or sale of timber from a commercial woodland. However, other income derived from the land in the form of rents or renewable energy project income for example, is taxable. There is no income tax relief for expenditure incurred in managing commercial woodland. Woodland creation grants are tax free, however, agricultural subsidies are taxable.
These income tax benefits have the effect of increasing the return on your investment when compared with other taxable sources of income.
Capital Gains Tax (CGT)
CGT is not payable on the value of the commercial woodland asset which is attributable to the tree crop during the period of ownership. This includes all standing, fallen or felled timber on the land. The increase in the value of the underlying land is most likely to be liable to capital gains tax. Capital works on the land during ownership can also reduce the CGT gain and please note that non-commercial woodland is subject to normal CGT rules.
There is also potential to take advantage of roll-over relief when qualifying business assets are replaced, however, this relief only applies to the land and capital works, within a given timescale.
Inheritance Tax (IHT)
Commercial woodland currently attracts 100% business property relief if owned for a minimum of two years before its transfer. If owned upon death, no inheritance tax is paid on the total value of the land and crop. If there is any Capital Gains Tax liability which has been held over or rolled over, the liability will be cancelled on death. If a commercial woodland is gifted, the beneficiary should retain the commercial woodland for the lifetime of the donor or seven years, whichever is the shorter period. The beneficiary may sell the commercial woodland, but if wishing to benefit from business property relief they should invest the entire proceeds in another qualifying asset to ensure 100% business property relief is still available.
Value Added Tax (VAT)
Commercial woodland owners can elect to register for VAT to enable them to reclaim the VAT element of expenditure on forestry operations. Forestry investors may also have to register for VAT if acquiring a commercial forest on the transfer of a going concern, although rarely required.
Forestry ownership can involve periods of expenditure and non taxable supplies, such as timber sales. HMRC will accept registration for VAT as an “intended trader” provided there is an intention to produce taxable supplies at a future time. Standard rate (20%) VAT is currently chargeable on timber sales to a wholesaler or 5% if fuelwood is sold to the general public for domestic use.
Land & Buildings Transaction Tax (LBTT)
In Scotland the Land and Building Transaction Tax (LBTT) is charged as a progressive tax and payable on the purchase of a property only. The percentage rate charged on the actual price of the property is applied to the value that falls into each band and up to that threshold. Woodland and agricultural land is treated as non-residential property and the following rates apply:
- Up to £150,000 = 0%
- Over £150,001 to £250,000 = 1%
- Over £250,000 = 1 - 5%
For more information and to use the Scottish Government LBTT Tax Calculator please click on this link LBTT Tax Calculator
Stamp Duty Land Tax (SDLT)
In England and Northern Ireland woodland is sold under the same tax rules as residential property, except that the cut off values vary. Based on the purchase price/lease premium or transfer value (non-residential or mixed use) the Stamp Duty Land Tax (SDLT) rates (including first time buyers) are as follows:
- Up to £150,000 = 0%
- £150,001 to £250,000 = 2%
- Over £250,000 = 2 - 5%
For further information please click on this link HMRC
Land Transaction Tax (LTT)
In Wales Land Transaction Tax (LTT) is payable on any land transaction in Wales. LTT is operated by the Welsh Revenue Authority.
- Up to £150,000 = 0%
- 150,001 to £250,000 = 1%
- £250,001 to £1,000,000 = 5%
- Over £1,000,000 = 6%
For more information go to the Welsh Revenue Authority
In the Republic of Ireland the taxation of woodland is similiar to the UK, except there are differences that require specific advice. Please contact me to discuss this if you are looking to buy or sell land or woodland in the Republic of Ireland.
Useful Website Links
Small Woods Association - www.smallwoods.org.uk
Royal Scottish Forestry Society - www.rsfs.org
Confederation of Forest Industries UK - www.confor.org.uk
Institute of Chartered Foresters - www.charteredforesters.org
Scottish Forestry - www.forestry.gov.scot/support-regulations
Forest Research UK - www.forestresearch.gov.uk
UK Govt Tax - www.gov.uk/guidance/woodland-owners-tax-planning
Committee on Climate Change - www.theccc.org.uk
UK Forestry Standard - www.gov.uk/government/publications/the-uk-forestry-standard
UK Woodland Carbon Code - www.woodlandcarboncode.org.uk
UK Peatland Carbon Code - http://www.iucn-uk-peatlandprogramme.org/
UK Woodland Carbon Guarantee Scheme - www.gov.uk/guidance/woodland-carbon-guarantee