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Tax Benefits of Investing in Woodlands

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Newsletter issue - March 07.

There are some significant tax advantages to investing in woodlands including...

  • Income Tax - there is no income tax payable on woodlands. Relief for losses incurred and any interest paid in the initial planting period is not available but as and when profits arise, they are not taxable. Forestry grants are not taxable but annual grants under the Farm Woodland Premium Scheme are.
  • Capital Gains Tax - there is no CGT on trees that are standing or felled but the land is a chargeable asset for CGT purposes. However, various reliefs from this are available, including rollover relief and business assets rates of taper relief if the woodlands operation is a trade.
  • Inheritance Tax - if the woodlands are managed on a commercial basis, even with there being no income tax, they qualify for 100% Business Property Relief as long as they have been owned for 2 years, meaning that no Inheritance Tax is payable on the woodlands investment. This covers both the timber and the land.
  • VAT - if sales reach the registration limit it is necessary to register for VAT, although registration can also be made on a voluntarily basis before then so that VAT on business expenditure is reclaimable.

To benefit from these incentives it is NOT actually necessary to plant the trees yourself and wait for them to grow! Woodlands of all ages can be bought and sold on the open market and various woodland management companies and investment schemes exist. Government Grants are also available.