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As horse racing returns, and we look forward to the Derby, Waldkonig has got me thinking about woodland and forestry ...

Isn’t it wonderful to have the sport of kings back on our screens, albeit behind closed doors. After a fabulous Ascot, we are set for an historic Epsom on 4 July with the Derby and the Oaks being run on the same day for the first time in their history. Waldkonig (or King of the Forest) is a provisional entry for the Derby at time of writing and, considering that woodland and forestry are in the limelight at the moment, I just wonder if this is his time to shine. 

The woodland and forestry market remains buoyant despite lockdown, and understandably so. Woodland and forestry’s biodiversity and carbon sequestration benefits were much publicised as all political parties vied with one another to promise to plant the greatest number of trees prior to the last election. As the prospect of the removal of CAP subsidies looms post Brexit, the principle of public money for public goods, enshrined in the Agricultural Bill, continues the emphasis on rewarding environmental initiatives. 

Considering the current environmental and political backdrop, it seems likely that the current preferential tax treatment for forestry and woodland will continue. That said, much has been written in recent months about the government’s potential attack on valuable inheritance tax (IHT) reliefs, such as agricultural property relief (APR) and business property relief (BPR), particularly in light of the mounting costs of the COVID-19 pandemic. These reliefs currently reduce the value of qualifying assets chargeable to IHT by 50% or 100% and are worth in excess of £1 billion per year. 

For executors wishing to claim IHT relief and woodland or forestry owners planning  ahead, the devil’s in the detail.

While woodland relief might seem the obvious relief to claim based on its name alone, this is in fact not a relief but an IHT deferral which should only be claimed if no actual relief is available. 

APR would seem the next choice but is only available in limited circumstances where the woodland is occupied with and ancillary to agricultural land or pasture.  APR would not, therefore, be available for commercial forestry. However, if it is part of a trading business and satisfies the two year ownership requirement, BPR should be available instead. 

It is worth noting the recommendation from the Office of Tax Simplification that the threshold for BPR be increased from over 50% trading activity to and 80/20 split between trading and investment activity, in line with the current threshold for capital gains tax relief. Businesses involving commercial forestry which are currently less than 80% trading may wish to review their position and restructure. 

Despite the complexity of the reliefs, it seems clear that woodland and forestry are very much in line with the government’s environmental agenda and, as such, a very good bet - undoubtably a safer one than Waldkonig on Saturday...

The commercial forestry sector has remained buoyant during lockdown at a time when people are increasingly concerned about carbon trade and the benefits of natural capital

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