Woodland Acquisition Services
What makes investment in forests and woodlands unique?
Forestry is a land-based investment and creates growth from both:
- The physical organic growth of the trees at up to 5% volume increment per annum in conifers
- Appreciation in value of the underlying land, known as the Solum value
Forestry also generates revenues from the harvesting and sale of timber, the timing of which can be flexible to some extent to avoid periods of weaker timber demand. Additional income can be derived from leasing of sporting rights and leasing land to renewable energy developers.
The relative levels of these factors are dependent on the location, site conditions, and the species of tree being grown.
Commercial forests in the UK are primarily planted with fast-growing conifers and often located in upland areas where land prices are lower. Commercial profits are mainly driven by the growth in volume and value of timber.
By contrast, amenity woodland generally includes a significant element of native broadleaved species and are usually located in lowland areas. Many woodlands contain commercial and amenity crops in some locations such as South-West England. Investment returns here are at least partly dependent on an increase in value of the underlying land; they are normally a long-term investment.
Tax Treatment of Forestry UK
The income derived from timber sales is free of income and corporation tax. Growing timber is exempt from Capital Gains Tax (CGT), and CGT liabilities arising from sale of business assets can be rolled over into commercial woodland purchases.
For individuals investing with the ultimate benefit of their children or grandchildren in mind, forestry is a particularly attractive vehicle. After two years of ownership, it qualifies for 100% Business Property Relief (BPR) from UK Inheritance Tax. To learn more about the BPR, click here.
The definition of commercial woodlands as defined in legislation has yet to be fully tested in the courts. However, most tax inspectors seek evidence of ongoing professional management and conventional accounting records displaying management on a commercial basis, generally via a Management Plan approved by the Forestry Authority.
Fountains Forestry UK Ltd is not a financial or tax advisor, and interested investors should consult their own financial and tax advisors to check the applicability of the taxation benefits and the suitability of forestry investment for their own particular circumstances. While every care has been taken to ensure that the information provided is accurate, neither Fountains Forestry UK Ltd nor its employees accept any liability for the contents of this website or their application to any individual circumstances.
Other Motives for Forestry Investment
Unlike other property investments, the owner can enjoy benefits from the use of the forest or woodland whilst still maintaining it as a commercial operation.
These potential benefits include recreation, nature conservation, deer stalking and rough shooting. Game shooting can also be developed around the woodland.
In the environmental field the sequestration of atmospheric carbon is increasingly seen as a particular benefit from the establishment of new woodland. Together with trusted technical partners Fountains Forestry provides a service to calculate the carbon footprint and then proposes various new woodland creation options designed to offset the impact. Suitable sites could range from a new commercially designed spruce forest in Scotland, Northern England, or Wales to a new lowland or upland broadleaved woodland
Alternatively, the woodland investor can gain funding for planting projects from the voluntary carbon credit market by agreeing to establish woodland on their land, which will offset a third party’s carbon impact. This is best achieved via compliance with the government-backed Woodland Carbon Code.
Sourcing, Valuation and Appraisal
We constantly review the forest and woodland market in the UK and are in regular contact with the major and provincial selling agents. As well as the properties listed on our property page we can provide you with full sales particulars on any woodland property for sale in the UK. We provide detailed information for our clients on the current market value of a property and the forest’s potential.
Due Diligence and Objectives
Initially, Fountains Forestry works with the client to develop the objectives and strategy for their forestry investment. We use market intelligence to generate a shortlist of potentially suitable properties with these parameters agreed.
The next phase is to undertake due diligence. We provide indicative information
on the current market value of a property, highlighting potential risks and income opportunities. This can be extended to detailed financial modelling, based on timber growth, land appreciation, timber production forecasts, and cash flow analysis for up to 25 years, including other income sources. Investment value can also be assessed by a combination of discounted cash flow analysis and regional sales comparables.
When we have considered and selected one or more suitable target properties, we will conduct a forest appraisal to assess property condition, performance, and productivity.
Depending on the investor’s requirements, this appraisal can be at varying levels of scrutiny.
Due diligence appraisal includes the following:
- Summary of key features of the property, including topography and quality of physical access routes
- Ground and soil conditions
- Form, quality, and growth rate of the existing tree crops
- Requirements for capital investment e.g. fencing and internal roads
- This appraisal can be extended to assessment of forest value using financial modelling, which includes income sources such as timber sales, land appreciation and sporting lets and also considers the estimated costs