Writing for Taxation magazine, BKL tax adviser Terry Jordan answers a query about the tax implications and advantages of woodland ownership.
I have a client who is purchasing an area of woodland. He tells me that his initial plans are to use this as a place of recreation for his family. However, he has also mentioned to me that, when his children are older and perhaps less interested in running around in the countryside, he might consider using it for business purposes.
These plans would, I assume, be subject to planning permission being obtained but, as an example, he was wondering whether it might be suitable for paintballing. This led to questions about the tax advantages and this caught me on the hop because I have no other clients owning woodland.
Can readers advise on the present tax position of woodlands? For example, are there any special rules relating to running a business on such a site. Further, what would the capital gains tax position be on a future sale, particularly if there was a period of personal use and, subsequently, business use? Finally, are there any inheritance tax advantages to woodland ownership – would agricultural property relief apply?
I look forward to replies.
Query 18,963 – Robin.
Reply by Terry ‘Lacuna’ Jordan, BKL
Significant changes to the taxation of woodlands were made in 1988 (this correspondent was then in the Revenue’s Policy Division, but claims no credit) and the sale of timber from commercial woodland is exempt from income and corporation tax. Losses are not relievable and capital allowances cannot be claimed.
Capital gains tax is potentially payable only on the underlying land, not on the timber. Entrepreneurs’ relief might be available if the land is eventually sold as part of a qualifying business, say paintballing. The availability or otherwise of the relief if the business is the growing of timber was considered in the replies to the query ‘Woodland relief’ and an editorial note explained that the commercial occupation of woodlands is not a trade (ITTOIA 2005, s 11(1)) and relief would not be available.
On inheritance tax, agricultural property relief would not normally be available to woodlands (except to short rotation coppice or woodlands ancillary to farmland such as shelter belts), but woodlands run on a commercial basis should benefit from business property relief at 100% once owned for the
two-year minimum period of ownership. There is a deferral relief under IHTA 1984, s 125 et seq, but that is rarely claimed in this correspondent’s experience because business property relief is more valuable.
