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Frequently Asked Questions
I have heard that forestry attracts favourable tax treatment. What does this entail and to whom does it apply?
Woodland ownership offers a number of tax efficient benefits. These include:
Business Asset Relief from Inheritance Tax (IHT):
Woodland managed commercially qualifies for 100% Business Property Relief (BPR) once held for two years. If held at death there is no IHT payable on the total land value of the land and trees. Any Capital Gains Tax (CGT) liability on the asset which has been held over or rolled over will be extinguished.
Capital Gains Tax (CGT):
The value of the growing timber crop is currently exempt from Capital Gains Tax. However, any increase in the value of the underlying land from the date of acquisition until the sale of the property will be taxed without indexation at the current CGT rate - see the HMRC website for details of current rates.
It is important to demonstrate that the property has been managed as a commercial investment to qualify. It should also be noted that the land value within a commercial forest can be as low as 10-15% of the forest value, as the majority of the value lies in the growing timber crop of a mature forest, which is exempt.
It is wise to take advice on apportioning the value between the growing crop and the underlying land, as HMRC may request a valuation of the bare land value at the time of sale. John Clegg & Co are able to advise and assist on such matters.
Capital Gains Roll Over Relief:
There is a clear opportunity for those who have a CGT liability arising from the sale of a business asset. By rolling over into another qualifying asset - timber - CGT liability can be deferred. By holding the forest until death the estate is assessed for inheritance tax and the CGT liability is extinguished.
Tax Free Income:
Income generated from the sale of timber from the ownership of commercial woodlands is exempt from both income and corporation tax. No tax relief is available on development costs or interest payments, and no income tax is payable on income generated from a timber crop or on the sale of an entire plantation.
Please note that this information is for general guidance only. Prospective woodland investors should take more detailed advice from their accountants.