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HMRC has reviewed and expanded its tax guidance for owners of woodlands. Owners may qualify for certain tax reliefs or exemptions from certain taxes, depending on the type and use of the woodlands.
The updated online guidance features new sections addressing the tax treatment of different types of woodland, including commercial woodlands, amenity woodlands and ancient woodlands.
Inheritance tax (IHT) reliefs are available for certain types of woodland. For instance, commercial woodlands where timber is grown for felling in the future may qualify for woodlands relief. Recognising that growing trees may take several generations to mature, woodlands relief is designed to prevent an IHT charge arising on each successive death. Woodlands relief applies to the value of the trees or underwood, but not the land on which they grow. It allows the IHT to be deferred until the trees are disposed of – for example, by sale or gift.
Other types of woodland that are used as part of a business or ancillary to agricultural activities may instead attract business property relief or agricultural property relief (APR).
Ancient woodlands that are sites of special historic, scenic, or scientific significance may qualify for the conditional exemption tax incentive scheme. This exempts them from capital gains tax and IHT if certain conditions are met.
From 6 April 2024, woodlands relief and APR will be available for property located in the UK only.
Different types of woodlands may also attract special treatment for income tax and corporation tax purposes. The type of woodland may affect an owner’s eligibility for the basic payment scheme.
Land used to generate carbon or other ecosystem service units may also be outside the scope of income tax and corporation tax. As the application of the tax rules to this developing area is evolving, both HMRC and other guidance is thin on the ground. The updated guidance highlights the guidance that exists currently. However, taxpayers may need to take specialist advice.
HMRC recently held a consultation on the Taxation of environmental land management and ecosystem service markets, with a response expected in early 2024. Read ICAEW’s representation.
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