Woodland Acquisition Services
What makes investment in forests and woodlands unique?
This is a land-backedpurchase. It can achieve growth in value from two sources:
- Physical organic growth of the trees: up to 5% volume increase per annum in conifers
- Appreciation in value of the underlying land
Forestry also generates income yields from harvesting and sale of timber; the timing of which can be flexed to some extent, to avoid weak timber markets. Additional income can be produced from leasing of sporting rights and, in some circumstances, leasing of land to wind farm developers.
The relative levels of these factors depends on the location, site conditions and the nature of the tree species 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 growth in volume and value of timber.
By contrast, amenity woodland generally includes a significant element of native broadleaf species and are usually located in lowland areas. In some areas, such as South West England, many woodlands contain both commercial and amenity crops. Investment returns here are at least partly dependent upon an increase in value of the underlying land; they are hence normally a long-term investment.
Tax treatment of forestry
The tax income from timber sales is free of income and corporation tax. Growing timber is exempt from Capital Gains Tax (CGT); moreover, 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 in mind, forestry is particularly attractive as, after two years of ownership, it qualifies for 100% Business Property Relief from UK Inheritance Tax.
The definition of ‘commercial woodlands’ as defined in the legislation has yet to be fully tested in the courts. However, most tax inspectors apparently seek evidence of ongoing professional management, proper accounting records and ‘are managed on a commercial basis with a view to the maximisation of profits, generally via a Management Plan approved by the Forestry Commission.
A summary of the potential tax advantages from purchase of forestry assets is available in our leaflet ‘A Guide to UK Forestry Taxation’, which can be downloaded from this website.(INSERT LINK?)
Other motives for Forestry Investment
Unlike other property investments, the owner can derive benefits from use of the forest or woodland whilst still maintaining it as a commercial operation.
These potential benefits include recreation, nature conservation and for those so inclined, deer stalking and rough shooting. In certain cases, 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 technical partners, Fountains Forestry is able to calculate the carbon dioxide output from an investor’s activities – or ‘carbon footprint’ – and to propose various new woodland options for offsetting that impact. This could be anything from a new spruce forest in Perthshire to a new oak woodland in the National Forest (East Midlands).
Alternatively, the woodland investor can gain funding for planting projects from the voluntary carbon credit market by agreeing to establish woodland on his land which will offset a third party’s carbon impact. This is best done through compliance with the government backed Woodland Carbon Code.
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.