Inheritance tax free investment opportunities in woodland and forestry * how to avoid paying income and corporation tax by investing in woodland

Inheritance Tax (IHT)

Then also provided the beneficiary survives for at least seven years from the date of your gift, there will be no inheritance tax liability on your estate. However there is little point in making the gift if you do not expect to survive for seven years, because you can pass the woodlands free of IHT to the beneficiary by your will provided you survive for two years. By a valuable concession your estate would have to pay the IHT if you die within two years of purchasing the woodlands, but it will be offered ten years to pay the tax interest free.

Start of article about tax free investments.

Minor tax disadvantages

With all these tax benefits available to forestry investors, there are bound to some drawbacks. Fortunately these generally are of very minor consequence. The main ones are that woodland development costs and interest payments on loans taken out to purchase the woodlands, are not deductible for income tax purposes.

When income from your woodlands exceeds these outgoings, there is no problem because the income is tax free. Care therefore should be taken to minimise outgoings until income is expected.

Summary of main benefits from investing in a forest or a forestry fund

Ability to generate income when needed. Income currently running at 5% p.a. on investment (or 4% p.a. after deducting annual management charges). This compares with 2% p.a. gross (and breakeven after charges) claimed for most funds invested in equities.

You will have an asset backed investment whose value rises by an average of 5% p.a. as timber increases in value each year as it matures.

Substantial tax benefits, including:

• Roll-over relief from CGT on sale of any business asset.
  
  
• Tax free income from sales of felled timber or on the timber value if you sell the forest itself.
  
  
• CGT only payable on increases in real value of the land if the forest is sold during your lifetime.
  
  
• Usual extinguishment of CGT liability on death.
  
  
• 100% relief from IHT on the value of the forest provided you have owned it for two years before death.
  
  
• Concession to pay IHT over 10 years interest free if you do die within two years of purchasing the forest.

An example will show how these two drawbacks are of minor importance to most investors who decide to use forestry investment as a major part of their tax planning.

Before going ahead you are strongly advised to seek advice from a professional adviser that is authorised under the Financial Services and Markets Act 2000, and competent to give investment advice to private investors on UK managed forestry funds which are unregulated collective investment schemes.