With the rural economy facing challenges around the future of the post-Brexit direct support scheme and the emergence from Covid-19, many buyers see forestry as a reassuringly tax-efficient and lucrative form of investment.
The Scottish Government’s Climate Change Plan of January 2017 had already proposed specific targets for woodland expansion to afforest 21% of Scotland by 2032. Now, as it plans a green recovery from the pandemic, it recognises that productive conifers and native woodland can support the progression towards 2045 net zero emissions targets, and that forestry can sustain jobs.
Incentives, income and tax benefits
Although forestry ownership does not generally offer a quick investment return for buyers, there are generous tax reliefs and incentives.
Incentives in Scotland include the Forestry Grant Scheme, operated by Scottish Forestry, available for a number of purposes connected with the creation and management of new woodland.
Woodland owners may also be able to generate extra income by registering for eligibility under the Woodland Carbon Code.
There are also well-known tax benefits for owning and managing commercial woodlands:
- 100% Business Property Relief on the ownership of woodland managed commercially, provided it has been owned and managed for two years
- exemption from Capital Gains Tax for the timber crop value itself. Although the underlying land is chargeable, its value without the timber is substantially reduced
- no income tax or corporation tax chargeable on the sale of timber from commercial woodlands.
For anyone seeking to make use of such incentives and benefits, it is important to explore a number of considerations when buying land for forestry.
Access
Access is probably the most fundamental consideration when looking at a site to be developed for forestry. In particular, the sufficiency of access to the public road network will be tested when the timber needs to be extracted (if that’s the intention).
If the property is not directly accessed off a publicly adopted road, and the purchaser does not own the private roads connecting to the public network, there must be sufficient servitude rights of pedestrian and vehicular access over third-party owned private roads.
Grants
Prospective buyers should check all existing grants and related documentation to ensure they accord with the current management and layout of the plantation:
- felling licences should be checked and confirmation obtained from the administering authority that licence conditions have not been breached
- all replanting and aftercare provisions should have been complied with
- evidence should be obtained that there are no penalties for non-compliance with the grants.
Title conditions and third-party rights
If the land is being acquired for commercial forestry use, the title deeds to the property should be checked to ensure there is no prohibition against that.
If neighbouring proprietors have access rights over the land being acquired or lead services through it, it is important to check the routes will not be affected by tree growth. Not all third-party rights are evident from the title deeds, and there could be well-established, unwritten rights that have become legally enforceable over time.
Historic designations, Local Authority Core Paths and Public Rights of Way can also be barriers to tree planting, so full due diligence on these should be undertaken.
Most purchasers of forestry land will expect to take advantage of the generous tax reliefs and exemptions in the future, but the matters above can deliver unwelcome shocks when it comes to realising the investment. Full investigations at the outset can avoid issues.
Our Rural Services team has the expertise to assist with and advise on all of these matters.
