The recent Earth Day on 22 April, highlighted how we depend upon and severely impact our planet.
It is hoped that by Autumn 2023, the Treasury will have a clear policy of how the tax system, incentives and reliefs should be utilised to guide UK businesses towards a ‘green’, energy efficient and low carbon future.
There are numerous schemes to incentivise and penalise businesses to encourage sustainable practices.
Examples are, capital allowances, freeports, enhanced capital allowances, plastic packaging tax, all seeking to enhance investment or change behaviours.
Woodlands taxation is one of those schemes and has barely changed for decades. However with the exponential rise in carbon offset trading involving tree planting, it can be difficult to navigate through the woodland and new carbon reliefs available.
For a commercially managed woodland, the following tax benefits exist:
- 100% relief from IHT once you have owned it for more than 2 years
- Capital Gains Tax (CGT)Timber sales and increases in the value of growing timber in commercial woodlands are free of CGT
- Opportunity to “roll over” any CGT liability that you may have generated from the sale of a qualifying business asset, over a 4 year window, against the land value until the woodland is sold
- All incomes generated from commercially managed woodland are completely free of income tax and corporation tax
The changing tax landscape
Whether you agree with the use of carbon-offset schemes involving planting trees or not, it will impact tax policy.
These schemes are rapidly becoming a trading business model to allow the buying and selling of carbon units for offset purposes.
Growing timber and utilising the Woodland taxation schemes described above are tax efficient but as a long term investment it can take generations to allow trees to mature to achieve a meaningful return on investment and few can afford that luxury, making carbon offset plantations appealing.
It is hoped that the UK government takes carbon reduction seriously and enacts appropriate tax policy to deal with the rapidly evolving nature of businesses and carbon trading platforms as we strive to protect our planet.