This month we are delighted to welcome a contribution to our journal, from special guest writer Anthony Wyld, Managing Director of Forestry Investment Consultancy Ltd. Here, Anthony discussed some fascinating reasons to consider woodland as an investment to aid your tax planning strategies.
Is buying woodland a good tax planning strategy?
There can be few more exclusive investments than woodlands or forestry. If you ignore traditional estate owners and farmers and those with small copses attached to their houses, there are probably less than 5,000 owners of commercial forests (more if you include collective investment schemes). For many, their woodlands are amongst their most prized possessions, and I get great pleasure from assisting in the creation of arboretums, avenues and ponds as they create their legacy to future OS maps.
There are compelling reasons why one might be drawn to buying woodland in the first place;
Why Buy Woodland?
- The full value of a forest qualifies for 100% BPR (Business Property Relief) – meaning no IHT (Inheritance Tax) on their value once they have been owned for 2 years.
Timber income is free of income and corporation tax (in acknowledgement that forestry expenditure does not receive income tax relief).
- Timber values are free of CGT (Capital Gains Tax) – meaning that it makes no difference whether you sell trees standing or felled.
- A woodland value is made up of land and the tree crop. Forestry land is generally worth around £1,500-£2,000 per acre – much less than the agricultural ground that it may border. Conifer tree crops vary in value from around £1,000 per acre if only recently planted, to £10,000 for a 40 year old Sitka Spruce crop ready for harvesting.
Generally a plantation has a wide range of species and tree ages. A bit like farms, around 70% grow commercial crops, which in Scotland, Wales and North England are most likely to concentrate on Sitka Spruce ( a crop that not only produces fine sawmilling timber, but fencing, and fine white pulp at the smaller diameters). The other 30% is likely to be broadleaves, open ground, streams, and glades.
A range of crop ages provide their owners with the scope to realise chunks of tax free income at predictable periods in the future which may be planned for distribution to children or grandchildren.
Nearly 90% of our 45 million tonnes of UK timber consumption comes from conifers (we are in fact the second largest timber importer after China) which is used for sawn material, panels and boards, fencing, paper and more recently biomass. Prices have risen significantly during this century and seem destined to rise even further. With rising land values as well, this has meant that woodland owners have benefited from returns of 9.2% per annum compound over the last 25 years (Source IPD UK Annual Forestry Index 1997-2018).
The market for forests is small, with around £100 million in value changing hands per annum in around 60 decent transactions – making a typical forest worth £1-2 million. With strong competitive bidding it may take patience to make the investment in the first place. Detailed advice is essential to ensure the investment is sound in terms of access etc and calibre of crop.
A “typical” buyer is someone who has realised a substantial sum from perhaps the sale of a business or another asset, where the capital is not essential to the individual’s way of life. They are likely to be family orientated with an investment perspective that crosses the generations (hence why so few forests are sold each year). They are capital growth orientated although some may be attracted to taking tax free income from harvesting for themselves in the short term and recycling this into new crops which will mature for the benefit of their grandchildren.
The property is very much “theirs” and most enjoy visiting their properties, perhaps incorporating this into fishing, shooting or golf holidays. Organisations such as Forestry Investment Consultancy Ltd provide all the support in making the purchase and all the subsequent management and administration thereafter.