• Date

    01 Oct 2021
  • Category

Forestry and succession

The forestry market has been buoyant for a number of years and shows no sign of slowing down.  Demand continues to outstrip supply and the Governments in all parts of the UK have set ambitious tree planting targets to try and address this issue.

So why is investing in forestry so beneficial?

Apart from the environmental benefits we can gain from trees, there are also significant tax benefits, not least of which are the inheritance tax advantages available from investing in commercially managed forestry.

Once a sum has been invested in forestry for a period of 2 years, this will qualify for Business Property Relief (BPR) giving the value of the investment complete relief from inheritance tax.  This means on the death of the owner the beneficiaries will receive the full value of the investment, with no tax suffered. 

Compare this to an investment in the stock market which could be subject to 40% inheritance tax, leaving only 60% of the value for the beneficiaries and you can see why forestry has become such a key part of succession planning.  The value of commercially managed forestry would have to drop by 40% before the Estate were worse off and given recent trends it doesn’t seem likely that this will happen any time soon.

Forestry can also be extremely useful as a replacement asset for BPR purposes.  Consider the position where a successful entrepreneur has sold their business, which they have owned for many years, generating significant cash for the shares they held.  If those shares qualified for BPR then the individual’s inheritance tax liability has changed from 0% to 40% in an instant, as cash does not qualify for BPR. 

The replacement property provisions allow the entrepreneur to reinvest the cash proceeds they have received into a further BPR qualifying asset, such as forestry, and effectively preserve the BPR qualifying years which had built up on the original asset.  On reinvestment into forestry, there will be no need to build up a further two-year qualifying period, and the forestry will be eligible for full BPR from the date of investment.

For more information on succession planning, or to discuss in more detail, please speak to your local Azets contact or a member of our Agriculture team.

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Morag Watson Photo

Morag Watson

Partner Edinburgh
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