GovWire

Commercial woodlands

Inheritance Tax

When a landowner dies, Agricultural Relief will not be available for woodlands on their estate that are used for the production of commercial timber.

Business Relief may be available where:

• the woodlands are being actively used in a business
• the rules excluding investment businesses from business relief do not apply

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

If the woodland does not qualify for Agricultural Relief or Business Relief, but the trees or underwood are growing, Woodlands Relief may be available.

This is because growing trees may take several generations to mature. Subject to certain conditions being satisfied, Woodlands Relief ensures that Inheritance Tax is not charged on successive deaths during this time.

Where Woodlands Relief is available, you can elect to exclude the value of the trees or underwood (but not the land itself) from the value of the estate. Inheritance Tax is instead paid when the trees are sold, given away, or otherwise disposed of.

For full guidance on Woodlands Relief, and for information on eligibility, see section IHTM04371 of the HMRC Inheritance Tax manual.

Income Tax and Corporation Tax

Income Tax and Corporation Tax do not apply to woodlands managed on a commercial basis and with a view to making profits.

This means that:

• 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

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 of woodland or other preparation of land for forestry purposes

For more information, see section BIM67701 Woodlands of the HMRC Business Income Manual.

VAT

Where registered, VAT must be charged on all timber sales. For more information see VAT: detailed Information.

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.

For more information, see the section CG73200 Woodlands: commercial woodlands of the HMRC Capital Gains Manual.

Amenity woodlands

Inheritance Tax

Where the estate of someone who has died includes amenity woodland that is not used to produce commercial timber, it will most likely not qualify for Agricultural Relief.

The woodland may qualify for Agricultural Relief if the land is occupied with, and that occupation is ancillary to, agricultural land or pasture. This could include:

• woodland shelter belts
• game covert
• fox coverts
• coppices grown for fencing materials on the farm
• clumps of amenity trees
• spinneys

Where the land does not qualify for Agricultural Relief, Business Relief may be available under the Inheritance Tax rules. For more information, see section IHTM24032 Agricultural property: Woodlands of the HMRC Inheritance Tax Manual.

Short-rotation coppice

Short rotation coppice is where high-yielding varieties of either willow or poplar are densely planted and harvested on a 2 to 5 year cycle. The roots (or stools) are not disturbed and send up shoots, which are cut down to ground level and used for fuel.

Income Tax and Corporation Tax

The statutory definitions of farming say that the cultivation of short rotation coppice is considered husbandry. This means it is classed as farming and not woodland for Income Tax and Corporation Tax purposes.

Inheritance Tax

For Inheritance Tax purposes, short rotation coppice is considered agricultural land, and buildings used in connection with its cultivation are regarded as farm buildings.

Where the estate of someone who has died includes such land and buildings it may qualify for Agricultural Relief. For more information see Agricultural Relief for Inheritance Tax.

VAT

A reduced rate of VAT may apply to supplies of fuel and power for qualifying use, including wood. For more information, see Fuel and power (VAT Notice 701/19).

Short rotation forestry

Inheritance Tax

For Inheritance Tax purposes, trees planted and harvested with a longer rotation than 10 years may not qualify for Agricultural Relief but could qualify for Business Relief or Woodlands Relief. This is because they could be considered a form of commercial woodland.See Commercial Woodlands section for more details.

Agroforestry

Agroforestry systems exist where trees are designed to be a part of productive agricultural land.

This could provide multiple sources of incomefor farmers, through crops and livestock, and then through forestry products such as fuelwood or fruits and nuts.

For information on how agroforestry can affect Basic Payment Scheme eligibility, see How agroforestry works with the Basic Payment Scheme.

Inheritance Tax

Where the estate of someone who has died includes woodlands used for agroforestry, it may qualify for Agricultural Relief if the land is occupied with, and that occupation is ancillary to, agricultural land or pasture. This could include:

• woodland shelter belts
• game covert
• fox coverts
• coppices grown for fencing materials on the farm
• clumps of amenity trees
• spinneys

For more information see Agricultural Relief for Inheritance Tax.

Where the land does not qualify for Agricultural Relief, it could be considered commercial woodland and may qualify for either Business Relief or Woodlands Relief. See Commercial Woodlands section for more details.

Ancient semi-natural woodlands; woodland sites of special scientific interest

Ancient semi-natural woodlands are, or could be, included on the inventories of Ancient Woodland kept by Natural England.

Conditional Exemption Tax Incentive Scheme

To preserve and protect national heritage for the benefit of the public, the government introduced the Conditional Exemption Tax Incentive Scheme.

Buildings, land (including woodland), works of art and other objects that qualify under the scheme might be exempt from Inheritance Tax and Capital Gains Tax. These property types are called heritage properties by HMRC.

To be eligible you must own ancient semi-natural woodlands which are, or could be, included on the inventories of Ancient Woodland kept by Natural England and Scottish Natural Heritage. HMRC will consider your case for conditional exemption from capital taxes based on scientific, scenic or historic value.

If you own other woodlands on ancient woodland sites, such as new plantations, you might qualify for tax relief if your site satisfies the criteria relating to land of outstanding scenic or historic interest.

Conditional Exemption cannot be granted unless reasonable access is ensured.For more information, see 