MHA | Updated tax treatment on trees and woodland

Updated tax treatment on trees and woodland

Joe Spencer · December 21st 2023 · read

Sunlit Natural Spruce Tree

Tax treatment of trees and woodlands

Under the England Trees Action Plan (ETAP), Defra committed to reviewing guidance on the tax treatment of trees and woodlands, to provide greater clarity to landowners on how new and existing trees on their land affect tax liabilities. HMRC guidance has now been updated to provide high level tax information for the most common circumstances and those specific areas flagged by stakeholders in pre ETAP consultation responses.

Taxation of woodlands and forestry updated guidance

This was issued as a revision to the previous version which was issued in July 2018. The current guidance reflects the more recent changes in environmental matters, providing a useful summary of existing rules for Income Tax (IT), Capital Gains Tax (CGT) and Inheritance Tax (IHT) treatment (the view on what constitutes “ancillary” agricultural occupation is particularly detailed). It also discusses the options for conditional IHT exemption of “ancient semi-natural woodlands and confirming that relief may be available for ancient semi-natural woodlands which are, or could be, included on the inventories of Ancient Woodland kept by Natural England and Scottish Natural Heritage.

The guidance goes on to discuss the treatment of carbon and other ecosystem service units generated from woodland. It confirms:

  1. IHT Agricultural Relief will not be available, but Business Relief may be available under the Inheritance Tax rules where the woodlands are being actively used in a business and the rules excluding investment business do not apply.
  2. Where the business is generating credits under the Woodland Carbon Code or the Peatland Code alongside other activities, the generation of credits and the land employed for this purpose will generally be considered a non-investment activity.
  3. For IT and CGT, where woodlands are signed up to the Woodland Carbon Code or Woodland Guarantee Scheme, profits arising from the commercial occupation of woodlands are not chargeable to Income Tax and Corporation Tax and the value attributable to trees is exempt from Capital Gains Tax
  4. Income from leased land on which woodland exists or is created, will be taxable as part of a property business.

Much of the guidance just confirms existing practice, in a useful and concise summary. The ecosystem section shows us current HMRC thinking. We have been waiting for some time for HMRCs views on the wider issue of the taxation of this area – a consultation was taken last summer, but we were told at the Autumn Statement that the response wouldn’t come until Spring – this paper on woodlands may give a hint of what the wider outcomes may be”.

Agricultural Partner Joe Spencer

Get in touch

Should there be any questions in relation to the above change in guidance, please do not hesitate to get in touch with a member of our team.

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