Inheritance Tax: Seeing the Wood for the Trees

Woodland makes up 13% of the land in the UK. According to Forestry Commission research conducted in 2020 73% of that woodland is privately owned and managed with the remainder being owned by the Forestry Commission or other similar bodies. There are three ways that woodlands can escape IHT. This article will look at some points on IHT to consider when dealing with woodland.

Firstly, we need to know what the woodland is used for. Is it commercially managed? Is it used as a site for paintballing? Clay pigeon or sport shooting? Luxury forest retreats? Perhaps the wood is harvested and sold? The way the woodland is used is important to establish as this will inform us whether the land is likely to qualify for Business Property Relief (BPR), Agricultural Property Relief (APR) or Woodlands Relief.

1. BPR

For the woodland to qualify for BPR it would need to be commercially owned and managed as a business. Examples of this could be granting shooting rights on the land, using it for camping or outdoor sporting activities like fishing or paintballing, or harvesting the wood to sell in some form.

All other requirements of BPR must be met so the woodland must have been owned by the transferor for at least 2 years.

2. APR

To qualify for APR the woodland must be ancillary to farmland. Not all commercial harvesting of woodlands qualifies for APR as it does not all qualify as ‘farming’. If the woodlands are used for Short Rotation Coppice then this is classed as farming so APR may be available.

As above, all other ownership requirements for APR must be met for the land to qualify. This means that if the woodland is owned by the transferor and is ancillary to their farmland or is used for Short Rotation Coppice they will need to have owned it for a minimum of 2 years prior to the transfer. If the owner of the woodland is renting it out to a tenant then they must have owned the land for a minimum of 7 years before APR is available.

3. Woodlands Relief

The weakest of the three, woodlands relief is a type of deferral rather than a true relief from IHT. If the woodland can qualify for BPR or APR then this would be better. Unlike the other two types of relief above woodlands relief is only available on death and cannot be claimed when woodland is transferred in lifetime.

Woodlands relief is available where the deceased owned an interest in the land on which the timber has been growing for at least five years or the deceased received the interest in the land by gift or inheritance at any time. If woodlands relief can be claimed then the executors can make an election within 2 years of death to exclude the value of the timber from the value of the estate for IHT. If the timber is disposed of in future the charge to IHT will arise at that point unless the woodland is transferred to the disposer’s spouse or civil partner. If there is no disposal between the first death and the recipient’s death then the original charge is extinguished.

What makes this a weaker relief is that it only applies to the value of the timber and not the land itself. Additionally, there may be some instances where it is better to ignore the woodlands relief and opt to pay the IHT instead. This may be because the value of the timber is likely to increase in value substantially after death leading to the deferred charge being greater than the IHT that would have been paid if no election for woodlands relief had been made.

If you own woodland and require help on your estate planning or IHT management we would recommend contacting one of our Members for friendly and professional advice. Call us on 01522 687888 or use our Member Search to find someone local to you.