The government is planning to sell all the woodland owned by the Forestry Commission. Johann Hari discusses many of the issues involved here, but misses one, and that's that this is a massive opportunity for a tax planning bonanza for the rich.
As a commentator in the journal of the Society of Trust and Estate Practitioners said in April this year:
Investing in woodlandInvesting in commercial woodland attracts the flowing tax advantages:
- Capital Gains Tax. As timber grows it will increase in value. This increase is exempt from capital gains tax, but any increase in the value of the land is not exempt.
- Income Tax. Any income or profit generated from woodland is exempt from income tax.
- Inheritance Tax. Commercial woodlands (including both land and timber) qualify for 100 per cent Business Property Relief provided they have been owned for at least two years.
Triples all round for a few then.
Pretty much tax free destruction of one of our most valuable natural resources is coming our way soon.
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Richard
I’m glad you’ve picked up on this (and, more generally, for your excellent blog). The woodland exemption to various taxes is something that has flown under the radar for a long time.
But I think your “destruction of one of our most valuable natural resources” line is hyperbolic. After all, it’s only a tax-free woodland for as long as it has trees on it.
For this reason, private clients for whom STEP members act tend to have a very conservative (in the true sense) attitude to stewardship. In my time as a Private Client lawyer assisting clients holding woodland for IHT purposes, I’m pleased to say the general attitude is to manage forests responsibly (there are investment vehicles for this) and simply hold the investment as a tax-efficent store of value.
That said, I expect commercial owners will have a more aggresive attitude and rights of way etc will have to be fought for. But then, they will not benefit from the tax exemptions you report via STEP, as these only apply to individuals.
As such, if the woodlands are to be sold – and I agree they shouldn’t – then there is a strong argument for a regulated balance between indivudual and commercial holdings; this is a distinction I think worth making.
I’m not, of course, disagreeing with your strapline tha this represents a massive tax-planning bonanza, or that this is unjust. It’s just that rapacious commercial forestry and unjustified tax policy should not be conflated.
If we’re going to privatise any land then we need to collect the full rent for public benefit – that would stop the speculation. People should only own land in order to use it, not in order to make a fast tax-free buck.
yes, the idea that this is environmentally unfriendly simply doesn’t wash. Woodland needs to be actively managed, and trees treated as a crop. If we don’t do this, the demand for timber will be met from unsustainable sources overseas. But privately managed forests producing woodpellets for home burner use in the same country is about as environmentally friendly as it gets. The tax exemptions are of course decidedly odd.
By giving this exemption to IHT you totally undermine IHT as a tax in the first place, by creating a legal way not to pay the tax it becomes an optional tax, which it is not supposed to be, The problem with giving tax breaks to pet projects or investments such film or other apparently worthy causes is it is seen to be a zero cost or cheap way of supporting the cause, the reality is the true cost is actually much higher than just giving the cash to the cause.
I wonder what the prospectus says (will say) about the prospects for the tax advantages? But even assuming they continue, and I guess you have a view on that, the idea of the private sector exploiting natural resources to the mutual benefit of all is hardly a new one.
@alastair
“the idea of the private sector exploiting natural resources to the mutual benefit of all is hardly a new one”
Sorry, but that statement does not compute. Where is the mutual benefit here? Rent is an unearned increment which is appropriated solely by the landowner in the absence of LVT.