Woodland demand is high

Over the past decade there has been increased demand for commercially-managed woodlands by both individual investors and businesses alike, in part due to attractive tax benefits as well as the opportunity to diversify assets.

With the rise in biomass boilers many businesses are also looking to secure their long-term fuel requirements which has helped increase demand and optimism in the sector.

Income from the sale of commercial timber is not subject to UK income tax or corporation tax, however no tax relief is given for operational costs incurred.

Essentially the net profit earned is exempt from tax.

Income from other uses of the woodland such as land rents or shooting rights is still subject to tax in the usual manner.

Any capital gain made on the disposal or transfer of the standing timber is free from capital gains tax, however any gain attributable to the land the timber crop is growing on is still subject to capital gains tax.

Woodlands also qualify for “rollover” relief meaning if an individual has crystallised a capital gain on the sale of a business or another qualifying asset and the sale proceeds are used to acquire forestry, then the tax due on the original disposal is deferred until the woodland is sold, which may never happen.

Woodland ownership is often part of a longer-term strategy and if the woodland is held for two years then it should qualify for Business Property Relief (BPR) for Inheritance Tax (IHT) purposes. This has the potential to save IHT at 40%.

There are also specific IHT rules for non-commercial woodlands which can delay any tax that would be payable on death until the woodland is sold.

To qualify for the tax benefits associated to woodland, it must be owned, occupied and managed on a commercial basis with a view to the realisation of profits.

Many of the tax reliefs are not available if the woodlands are regarded as amenity woodlands or the activities are not being carried on with a view to making a profit.

Short rotation coppices or Christmas tree plantations do not qualify.

To help demonstrate the woodlands are managed commercially, the following tests should be considered. Is there a management plan in place showing the commercial objectives? Is advice being taken from a professional manager?

Is any income received from timber or woodland products?

Are any grants received under qualifying schemes?

The above list is not exhaustive but provides a list of key areas of focus.

The sale of timber itself is standardrated for VAT purposes as is the grant of a right to fell and remove timber.

It is common for woodland owners to register for VAT on a voluntary basis to recover VAT on management and harvest costs.

With growing optimism in the forestry sector and rising demand for timber, now may be an appropriate time to take stock and consider your options.

The sale of timber itself is standardrated for VAT purposes as is the grant of a right to fell and remove timber