There are special UK tax rules that apply to commercial occupation of woodlands in the UK. Due to numerous tax benefits, woodlands can be a very attractive investment option for you.
No income tax or Corporation Tax is charged on income and profits arising from the commercial occupation of woodlands. For example, the sale of timber.
Since the income is exempt, no relief is available for costs incurred in the course of commercial occupation of woodlands, and no capital allowances are available.
Woodlands that generate rental income are subject to tax as profits of a property business. Similarly, incidental income such as sporting rents, camping sites and Christmas tree production is not exempt from tax.
Capital Gains Tax
If the commercial woodlands are sold, the land is within the scope of capital gains or in the case of a company, Corporation Tax on chargeable gains.
However, gains attributable to standing trees, saleable underwood, felled or cut timber on the land are exempt from tax. Therefore, proceeds and costs relating to them must be excluded from the computation. Additionally, capital insurance proceeds from destruction or damage to trees or underwood are exempt.
Inheritance Tax (IHT)
- Business Property Relief – Commercial woodlands that are owned and occupied by an individual for at least two years ending with the date of death will normally qualify for Business Property Relief and therefore be exempt from Inheritance Tax.
- Agricultural Property Relief – is available where commercial woodlands are occupied ancillary to larger agricultural enterprise. In which case, Inheritance Tax relief may be available at a rate of up to 100%.
- Woodlands Relief – Where an estate on death includes trees or saleable underwood growing on land that does not qualify for Agricultural Property Relief, Inheritance Tax on the value of the trees may be deferred until the disposal by sale or gift other than between spouses.
Owning commercial woodlands has favourable income, corporation, capital gains and inheritance treatments such as woodlands relief or business property relief.