Woodlands and Taxation
Woodland ownership can have some useful tax advantages.The taxation of forestry /woodland has always been fairly generous to encourage people to purchase woodland and to spend money on management. The main tax advantages of owning woodland or forestry land are:
- income from timber sales is tax free whether the woodland is held personally or in a company name;
- if the woodland can be shown to have been commercially managed, it will be free of inheritance tax ("IHT" for short) once you have owned it for more than two years.If you want to hand on a woodland to children without inheritance tax/IHT being payable this provision saves the need to make a lifetime gift of your woodland;
- woodland gives the possibility of using the roll-over provision of the tax system.This means that if you have sold a business and made a capital gain and you use the money to buy a woodland, you defer (indefinitely) the Capital Gains Tax you would have paid on the sale of the business (or business asset);
- in any event the tax rate for capital gains has gone down since Spring 2008 to a single rate of 18% and you can use your Annual Exemption to give you £9,200 of non-taxable gain in any one year.If the woodland is owned in two names you will, of course, get two sets of allowance;
- if you do end up paying CGT (capital gains tax) it is at least reduced because when you sell a woodland you only pay tax on the gain in the value of the land and not on the increase in value of the timber;
- there are generally no property taxes (business rates etc) on woodland;
- Woodland Grant Scheme income is not taxed as it is spent directly on woodland management.
The historical background of forestry and UK tax is that for many years there was special treatment for forestry land, giving favourable treatment to money spent.This is important because it still shapes the pattern of ownership today – many people who own larger woodlands originally bought them on the advice of their accountants and were understandably fairly hands-off owners.Roughly, the way the tax regime worked was that expenditure on woodland was an allowable expense against the owner’s salary and at 40% this would be useful, but at income tax rates that were over 90% in the 1970s the benefit was enormous.When timber was ready to be harvested the woodland owner would then be allowed to transfer the land into a different “schedule” where a much lower rate of tax was paid.This came to an end with the budget of 1988, but the scheme was phased out over 5 years.
The government at that point decided to replace this regime with a simpler and fairer system that still supported forestry, but was not distorted towards those with high taxable incomes.Hence the new arrangements outlined above.
Obviously, we are not tax advisers and you should check with a professional (accountant, lawyer etc) before making any transaction that is dependent on the taxation consequences.
Perhaps you have experience of dealing with the Inland Revenue on forestry taxation – please add your comments here.Or maybe you have a query, which others might help with – please put it in here below!
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Discussion
Hi
I am giving serious consideration to a purchase of some 30acres of woodland in Gloucestershire .
I am put off by the fact that much of the wood is almost mature and the seller is asking a high price £7000 per acre .
the infastructure( tracks , waterways and fencing is not in great condition , are there any grants I could apply for ,to ease the burden of
putting these problems right .
There is a lot of mature beech that needs felling which I can sell at a good price for veneer production , would the funds received from this
be free of tax , and could I replant with a fast growing poplar and eucalyptus
pleased to hear
regards David
Hi Herman…
The answer is that there is no holding tax or property tax to pay on woodlands.
Some owners will want to take out property owners insurance but this will only cost about £50-£100 per year.
The very low holding costs make woodland a very attractive thing to own and is part of the government’s conscious effort to encourage people to manage the countryside and get involved in forestry and agriculture.
best wishes,
Angus
What are the if any yearly costs of owning a wood? for example do you pay any sort of land tax (if it is just kept as a woodland not for any profit but for nature)?
Are there any rates you have to pay.
I’m looking to purchase a few woodlands and need this clearing up, can’t find any clear anwsers.
Thank you.
Sorry if I have missed the answer
Herman
Interesting article,would appreciate any updates as available
The legislation for UK tax payers owning woodlands includes woodlands anywhere in the European Economic Area (EEA). A UK tax payer, individual, company, partnership etc., can therefore purchase/create woodland in any EEA country and enjoy these tax benefits.
South America, Asia etc. do not count for these purposes. The underlying purpose goes back to a European Forestry Accord of about 17 years ago, when it was agreed through an EU lead initiative that the countries of Europe needed to do something to encourage the generation of new forest, due to centuries of progressive loss.
A number of EEA countries offer a variety of tax benefits for forestry investment/purchase for their citizens. Many signed up to these benefits applying to EEA wide planting. The Scandinavian Countries and Germany have benevolent tax policies in this regard. However, the UK policies are among the most generous.
In the UK there is no legal definition of forestry, but there is definition from a high Court case of 2009 of “woodland”. Commercially managed is slightly nebulous in meaning, but a contract of some kind with payments to someone to mange would be clearly “commercial”. Management with the “intention to make profit” is essentially the nub of it. See:
BIM67701 – Woodlands
S11, S267, S768 Income Tax (Trading and Other Income) Act 2005, S37, S208, S980 Corporation Tax Act 2009
The occupation of woodlands managed on a commercial basis and with a view to the realisation of profits is wholly outside the scope of Income Tax and Corporation Tax. Thus:
•profits arising from the occupation of commercial woodlands are not chargeable;
•no relief is available for losses suffered;
•capital allowances cannot be claimed on capital expenditure incurred on plant or machinery connected with commercial woodlands;
•no relief is available for expenditure incurred on the preliminary clearance of woodland or other preparation of land for forestry purposes.
The owner of a commercial woodland who lets it in return for a rent is, however, chargeable on the profits arising from a property business.
Profits from the sale of trees in commercial woodlands are exempt from Capital Gains Tax, see CG73200 onwards.
Hope this helps clarify some points for posters.
Neil, good question. I’m not a laywer or accountant, but I think just doing work on it would not count – you’d perhaps be selling timber/woodland products and have all the trappings of running a business (bank account, etc) to be sure. Although, it seems that you might also be able to avoid IHT (inheritance tax) if your wood is a particular amenity, such as being a SSSI…
What exactly does ‘commercially managed’ mean? Do I have to declare the wood to HMRC as an asset and demonstrate that I have kept accounts of money spent, etc. Is a woodland that is managed (i.e,., has a considerable amount of work done and money spent on it) as a nature reserve exempt of inheritance tax? I suspect not. I think that the tax consessions relate to the production of timber, but maybe I’m wrong.
I have the same question as T Sebastian dated 23 October 2009, i.e. are UK Capital Gains and Inheritance tax concessions available for woodlands bought in South America, Or does the tax benefits apply only to woodlands owned in UK.
What about the sale of timber from a private woodlands located in another country of Europe owned by a UK resident non dom .
Thanks for help.
This info confirmed my understanding of the tax position, and very clearly presented. I am selling 26 acres, but having a problem getting someone to tell me how much land has risen in value over the past 25 years, Any suggestions ?
I would like to know whether UK Capital Gains and Inheritance tax concessions are elligible for woodlands bought and commercially run in other other parts of the world example Asia or South America, Or does the tax benefits apply only to woodlands owned in UK.
Timber sold is tax free but
It must only be plain timber snedded and cut to length.
If you add value to it it becomes taxable income.
Even sharpening the ends of fence posts makes it taxable income.
Hi Binz, as far as I know you just have to prove that you have made some money out of the wood…..
Does anybody know the answer to this one.I rent approx 25 acres of woodland on a daily basis as and when required.I use the woodland on these days (28 per year ) for paintball games.My local authority are now saying that I am required to pay business rates on the land. Is this correct or am I exempt due to the amount of days and/or the fact that I pay on a daily basis.
Thanks for this- it was really helpful. I was worried that the wood we own and use for various purposes- conservation activities, forest school for children, green woodwork etc might at some point be classified as a business premises. Though I expect it is important to emphasize the forestry activities so it isn’t purely educational. I didn’t know that timber sold was tax free either. Articles like this are so useful for people without the time to go researching so thanks.
Hi
is there a definition of ‘commercially managed’?
Do I have to generate a minimum / regular (annual?) income from the wood to qualify? or would selling the occasional boot load of firewood suffice
Binz
Clear and informative – thanks
Hi
I’m selling Culloden Woods in Inverness (11 acres) I only bought it 18 months ago, are there still tax advantages/
Stewart
19 November, 2019