The Scottish Government has recently committed to increase the annual tree planting target from 10,000 hectares to 15,000 hectares by 2025. There are attractive funding incentives available to landowners through the Scottish Rural Development Programme and the Forestry Commission which have been put in place to help achieve these ambitious targets. With these funding incentives the land can still qualify for Basic Payment. Also announced earlier this year is a Timber Transport Fund of £7m, which seeks to support sustainable timber transport in Rural Scotland. This funding highlights a strong commitment being made from the Government to kick start this sector. Other developments have also emerged through compliance with the Woodland Carbon Code which provides the opportunity for forestry owners to sell the rights of carbon captured by newly planted trees. There continues to be ongoing investment in biomass technology that benefits from renewable heat incentive payments.
All of these incentives are pushing forestry up the agenda. We have seen a rise in the number of discussions about planting trees, felling trees, selling forestry land or buying land to create a forestry business and discussing the tax implications of forestry in general.
As a reminder the key tax points to consider are:
- It is generally advantageous to have the forestry business in a VAT registered entity.
- When buying and selling forestry land check if it has been opted for VAT purposes and consider the Land and Business Transaction Tax (LBTT) implications.
- Income realised through the sale of timber is exempt from income tax. Grants are tax free, with the exception of payments made in compensation for agricultural income foregone.
- There is no tax relief for losses or capital purchases.
- There is no capital gains tax liability on the gain in value of commercial tree crops. Any gain on disposal of the woodland is split between trees and land. The element relating to trees is tax free and the element relating to land is taxable.
- No inheritance tax on death if held for two years and commercially managed.
Forestry must be commercially managed when considering it as long term investment, perhaps as an Inheritance Tax (IHT) asset protection strategy. The forestry business should have maintenance costs, a forestry management plan and either its own set of financial statements or its own enterprise accounts within a larger business.
If you want to discuss any of the points raised in this blog please get in touch with me here, or:
01738 441 888
The information in this blog should not be regarded as financial advice. This is based on our understanding in August 2017. Laws and tax rules may change.