Tax Treatment of Trees and Woodlands

Tax treatment of commercial woodlands can be a difficult area to navigate. However, we thought briefly summarising a few points of interest might help!

Let’s take a look…

Income Tax and Corporation Tax:

Commercial woodlands are not taxable as long as the activities are conducted in a view to making profits. With this being the case the following applies:

• income from the sale of timber from the ownership of commercial woodlands is exempt from both Income Tax and Corporation Tax – the exemption only applies if the timber cut or felled is not altered or transformed prior to sale
• profits arising from the occupation of commercial woodlands are not chargeable
• capital allowances cannot be claimed on capital expenditure incurred on plant or machinery connected with commercial woodlands

Please note that if the woodland is connected with or attached to an existing farming trade, special consideration will have to be given as to the tax status of the operation.

Relief is not available for:

• losses suffered
• expenditure incurred on the preliminary clearance of woodland or other preparation of land for forestry purposes

Capital Gains Tax

Profits from the sale of trees in commercial woodlands are exempt from Capital Gains Tax. This exemption applies whether the trees are standing or have been felled.

A growing timber crop (but not the land it grows on) is exempt from Capital Gains Tax, where managed as a commercial investment.

Inheritance Tax

A commercial woodland that forms part of someone’s estate is unlikely to qualify for Agricultural Relief. However Business Relief may be available where the following conditions are met:

• the woodlands are being actively used in a business, which is managed with a view to a profit.
• the rules excluding investment businesses from obtaining business relief do not apply.
• the woodlands need to have been owned and occupied by the transferor for at least 2 years before the transfer.

If the woodlands qualify for 100% Business Relief, Inheritance Tax will not be chargeable in relation to either the land or the trees.

If neither Agricultural Relief or Business Relief apply but the trees are growing then Woodlands Relief may be available.

For further information, please do refer to the government’s official webpage or feel free to give us a call. As Agricultural and Horticultural Accounting specialists, we are always poised to help!

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