If you go down to the woods today, you’re sure of a big … tax break!

Dec 4, 2023

Planting trees has been lauded as the saviour of the planet for some time, with the power to suck up carbon from the atmosphere, lock it away, and thereby resolve the climate crisis.  

Indeed, the government is so keen on trees, it is looking to treble rate at which they are planted in England by the end of the current parliament.  

To aid this, tree planting is one of the bedrocks of the ELMS scheme, designed to pay farmers ‘public money for public goods’.  

However, this demands farmers foot the bill for planting trees up front, and then have to claim the money back, which is likely to put many off.  

There is another way, however, and one that might make greater sense for farmers or landowners with some land spare.  

As well as incentivising the creation of woodland for public goods and carbon sequestration, the government is also incentivising planting trees for profit by granting significant tax relief for commercial woodlands.  

According to Ian Parker, the tax breaks apply to three key areas.  

He said:

“Commercial woodlands offers tax advantages in relation to income tax, capital gains, and inheritance tax.  

“As long as the wood passes the commercial test, profits from the sale of timber won’t be taxed, and the woodland should attract 100% inheritance tax relief via Business Property Relief. 

“In the event of selling the land with a standing crop, Capital Gains Tax only applies to the land element of the sale, which usually makes up the smaller part, therefore such a sale is extremely tax efficient.” 

Ian added to qualify as commercial, the woodland must be managed with a view to generating a return.  

“Proof of this must be documented in terms of annual accounts and the enterprise’s own P&L account, separate bank account, VAT registration if applicable, and active management which might include employing a professional forester,” he said.  

“However, farmers who are already well placed to manage woodland with existing plant and machinery may want to consider commercial forestry.  

“Commercial woodlands take much more management than those grown under land management schemes for purely environmental purposes. 

“But many farmers already have access to the types of machinery needed to manage such an enterprise, so diversifying into commercial forestry may be an opportunity worth exploring. 

“Of course, such a diversification is a long-term plan, but for family farms wanting to secure the future for generations to come, it may provide a very tax efficient solution while not compromising on inheritance relief.” 

To discuss the tax benefits of commercial woodlands further, or any other form of farm diversification, get in touch with Ian on (01295) 270200 or email ianp@whitleystimpson.co.uk 

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