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HMRC has conducted a comprehensive review and has expanded its tax guidance for woodland owners.

Depending on the nature and purpose of the woodlands, owners may be eligible for specific tax reliefs or exemptions from certain taxes. The recently updated online guidance introduces new sections that addresses the tax treatment of diverse woodland categories, including commercial woodlands, amenity woodlands, and ancient woodlands.

Inheritance tax (IHT) reliefs are available for certain types of woodland, particularly for commercial woodlands where timber cultivation is planned for future harvesting.
Woodlands relief may also apply, recognising the extended timeframe for trees to mature across generations. This relief aims to forestall an IHT charge at each successive death. Notably, it applies to the valuation of trees or underwood rather than the underlying land. It enables the deferral of IHT until the trees are eventually disposed of, whether through sale or gifting.

For other types of woodlands integral to a business or ancillary to agricultural activities, business property relief or agricultural property relief (APR) may be applicable.

Ancient woodlands with special historic, scenic, or scientific significance might qualify for the conditional exemption tax incentive scheme, exempting them from capital gains tax and IHT under specific conditions.

Starting from April 6, 2024, woodlands relief and APR will only be accessible for properties located in the UK.

Different categories of woodlands may attract distinct treatment concerning income tax and corporation tax. The type of woodland could impact an owner’s eligibility for the basic payment scheme. Land utilised for generating carbon or other ecosystem service units might be beyond the scope of income tax and corporation tax.

Given the evolving nature of tax rules in this area, the guidance from both HMRC and other sources is currently limited. The updated guidance uses the current available information, but taxpayers may find it beneficial to seek specialist advice due to the complexities in this developing area.

If you require advice on your tax and inheritance planning, please contact a member of the CB Reid team.