Woodlands & Taxation

Inheritance Tax (IHT)

If it is commercially managed, forestry is classed as a business property and therefore qualifies for 100% relief from IHT once you have owned it for more than 2 years. This includes the value of the land and the trees.

The major significance of this is that there is no need to make a lifetime gift of the woodland.

If a woodland is not commercially managed, there is still the advantage of relief from IHT being granted on the timber value of the property once it has been owned for more than 5 years.

You may qualify for IHT relief if your woodland is of outstanding landscape or conservation value, or if it is an SSSI (Site of Special Scientific Interest).

Capital Gains Tax (CGT)

Timber sales and increases in the value of growing timber in commercial woodlands are completely free of CGT. However, the increase in the value of the land is liable to CGT.

A great advantage of woodland purchases is the opportunity to “roll over” any CGT liability that you may have generated from the sale of a qualifying business asset, over a 4 year window, against the land value. This means that the tax you would have paid can be used to purchase a woodland and will not become liable for payment until the woodland is sold.

• There is an annual exemption amount (AEA) which allows a certain amount of capital gain to be made before CGT is charged. The amount for 2023/2024 is £6,000.
• Any non-residential gains above the AEA are charged at 10% for basic rate tax payers, and 20% for those whose total taxable gains fall above the higher rate threshold.
• Business Asset Disposal Relief (formerly known as Entrepreneurs Relief) of 10% can reduce the CGT liability further in some circumstances.

There is no official definition of a “commercial woodland”, but for your woodland to be seen as commercial there should be evidence that there is an intention to make a profit, either being used as a source of income or for capital profit. Selling timber, firewood or other woodland products will count as commercial activity, and normal business administration would be expected (for example a separate bank account, a management plan and objectives, a set of accounts) for a woodland to be classed as a business property.

Non-commercial woodlands are subject to normal CGT rules for non-business assets.

Income Tax (IT)

All incomes generated from commercially managed woodland are completely free of income tax and corporation tax.

No income tax is liable from sales of timber or the timber element when you sell an entire woodland.

Woods 4 Sale Ltd are not investment or taxation advisors and you should check with a suitable specialist (e.g. accountant, investment advisor) over your individual circumstances and requirements.

Nicholas Smail at Hazlewoods is experienced in this field. His contact details are below:

Nicholas Smail
Tel: +44 (0) 1242 680000
Email: Nicholas.Smail@hazlewoods.co.uk
Hazlewoods LLP, Staverton Court, Cheltenham GL51 0UX

Disclaimer

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