Commercial Woodland Taxation

The principal forms of taxation affecting commercial woodlands in the UK are:

Income Tax (for individuals) and Corporation Tax (for business), Capital Gains Tax (CGT), Inheritance Tax (IHT) and VAT.

The key features of each are summarised as follows:

Income Tax

  • No Income or Corporation Tax on the occupation of, or timber income from, commercial woodlands.
  • Profits from the sales of timber are tax free, rents and other revenue receipts from woodlands are liable to Income Tax.
  • No relief from Income Tax is given for expenditure incurred in commercial woodlands.

Capital Gains Tax (CGT)

Special provision is made for commercial woodlands under CGT legislation such that:

  • CGT is not payable on the gain in value of standing timber; only the increase in value of the underlying land is assessable.
  • Roll-over relief is available when qualifying business assets are replaced but this relief only applies to the land and capital works.
  • Non-commercial woodlands are subject to normal CGT rules.

Inheritance Tax (IHT)

  • Commercial woodlands currently attract 100% business property relief provided the transferor has owned the "relevant business property" for a minimum of two years immediately prior to the transfer. There is no definition of commercial woodlands. They are best described as woodlands which are "managed on a commercial basis with a view to the realisation of profits." There should be evident intent to make profits - income or capital - and the usual attributes of a commercial business such as professional management, separate bank account, VAT registration, accounts, etc.
  • Heritage Relief - woodlands may qualify for the conditional exemption from IHT which is available for assets of national heritage quality e.g. land of outstanding scenic, historic or scientific interest.

Value Added Tax (VAT)

  • Those registered for VAT must charge VAT on all timber sales.
  • Those not currently providing any taxable supplies, but intending to do so at a later date, may register for VAT as an "Intended trader".
  • Standard rate VAT of 20% is currently chargeable for fuelwood sold to a wholesaler. A lower rate of 5% is chargeable if fuelwood is sold to the general public for domestic use.