ICAEW.com works better with JavaScript enabled.

Continue reading

Investment in forestry

The Scottish Government has plans to increase the number of hectares of woodland to 15,000 per year by 2025.

The Scottish Government has set itself ambitious targets in relation to woodland. The aim is to increase the number of hectares being planted to 15,000 per annum by 2025, and to boost woodland cover to 21% of the country by 2032. These are demanding goals and suggest the need for a lot of large plantations, however even smaller areas of planting are going to help considerably if these targets are to be met. Investing in woodland can therefore be attractive to a wide range of investors. Forestry is often viewed as a relatively illiquid investment and as such the number of active investors in this market is still very low. However, forestry has demonstrated that it can perform favourably compared to other asset classes, and there are a number of tax benefits available as a result of investing in forestry. Here are a few reasons why you might want to consider forestry as an integral part of your succession planning.

The tax benefits come from investing in “commercially managed woodlands”. Although this is a recurring phrase in the tax legislation, it is not in fact defined. We have come to expect “commercially managed” to mean actively managed, preferably by a qualified forester, with other important evidence being found through a management plan and cash flow forecast being in place. The direct tax benefits of holding forestry come from the fact that any income from felling and selling the timber is not subject to tax, and indeed if the forest itself is sold, the value derived from the standing timber is also specifically exempt from tax. Only if the underlying land has risen in value is there likely to be a gain on disposal, and there are ways to reduce any exposure to capital gains tax on this, such as the use of losses and the annual exemption and the availability of rollover relief.