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Is capital gains payable on the sale of woodlands?

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TCGA92/S250 (1) & (2) Where a woodland is managed by the occupier on a commercial basis, any monies received from the sale of the trees from that woodland are exempt from Capital Gains Tax, TCGA92/S250 (1). This exemption applies whether the trees are standing or have been felled. TCGA92/S250 is restricted to woodland which is managed on a commercial basis and with a view to the realisation of profits. Apportionment of the value between land and trees plus saleable underwood is not applicable to agricultural or amenity woodland. Woodland may have more than one use, for example it may have both commercial and amenity usage. Where this is the case it will be necessary to apportion the value of the commercial timber away from the amenity value of the woodland. The exemption also applies to any sums received under an insurance policy in respect of the destruction of, or damage to, the trees, TCGA92/S250 (2). This exemption over-rides the general rule in TCGA92/S22 (1) concerning sums received under insurance policies. The guidance below covers certain terms and scenarios that you may come across. Short rotation coppice Growing trees Felled Trees Right to enter and fell trees Hedgerow timber and saleable underwood Top of page Short rotation coppice ‘Short rotation coppice’ is the intensive cultivation of trees, planted at high density, with the stems being harvested at intervals of less than 10 years. The cultivation of short rotation coppice is treated as farming for all tax purposes. Any land on which short rotation coppicing is carried on is not ‘woodland’ for tax purposes. Top of page Growing trees Where a commercial woodland is sold, the gain arising on that disposal is calculated in the normal way, but that part of the disposal proceeds which relates to the trees growing on the woodland is ignored. Similarly, any expenditure which relates to growing trees is excluded TCGA92/S250 (4) and (5). (Subsections (4) and (5) only apply to commercial woodland covered by TCGA92/S250 (1) and do not apply to agricultural or amenity woodland). Example On 31 December 20X2, an individual buys a woodland for £30,000. Of that amount, £20,000 relates to the value of the trees growing on that land. On 31 March 20Y3 (ten and a quarter years later), they dispose of the woodland for £50,000. Of that amount, £32,000 relates to the value of the trees then growing on the land. Ignoring, for this purpose, the allowable costs of acquisition and disposal, the gain arising is calculated as follows. Consideration = Disposal proceeds - Amount relating to growing trees = £50,000 - £32,000 = £18,000 Allowable expenditure = Cost of land - Amount relating to growing trees = £30,000 - 20,000 = £10,000 Chargeable gain = Consideration - Allowable expenditure = £18,000 - £10,000 = £8,000 Where an apportionment of cost or sale proceeds is needed to establish the amount relating to growing trees, advice should be sought from the Valuation Office Agency, see CG74150P. Top of page Felled Trees TCGA92/S250 (1) and (2) only exempts from Capital Gains Tax sums received in respect of timber from commercial woodlands. Any sums received in respect of felled trees from agricultural or amenity woodlands are within the charge to Capital Gains Tax. However, each tree is treated as a single chattel and a chargeable gain could therefore only arise in the unlikely event of the single tree being sold for more than £6,000. The provisions of TCGA92/S262 (4) regarding ‘sets’, see CG76631 onwards, do not apply to trees. Top of page Right to enter and fell trees Trees growing on woodland may be disposed of by the owner granting to another person the right to enter the woodland and fell the trees. If the trees are growing on a commercial woodland, the exemption in TCGA92/S250 (1) will apply. If the trees are not growing on a commercial woodland, the CGT consequences depend on the precise nature of the right which is granted. If the person to whom the right is granted is not entitled to benefit from the future growth of the trees, that is if they must fell the trees within a short time, the owner of the woodland is treated as disposing of the trees as individual chattels. If the person to whom the right is granted is entitled to benefit from the future growth of the trees, that is if they are granted the right to fell trees over a long period, then the owner is treated as having made a part-disposal of their land, see CG71800C. Top of page Hedgerow timber and saleable underwood Disposals of saleable underwood and timber from hedgerows are dealt with in the same way as disposals of trees TCGA92/S250(6).

Any profits or gains arising from the occupation of commercial woodlands are wholly outside the scope of Income or Corporation Tax. For general tax purposes, the receipts are not taxable nor are the expenses allowable. Woodlands expenses cannot be set against rental income or other activities at basic rate, nor can excess expenses be claimed as losses. However woodlands expenses may fall to be trust management expenses properly chargeable to income on normal lines, even though any related income may not be taxable. Whether the woodlands expenses are properly chargeable to income depends on the circumstances. Woodlands expenses may be chargeable to income if they are related to the income beneficiary’s receipts. Trust law on the subject of which receipts belong to income is very complex. There are principles about who is entitled to various woodlands receipts - whether it is ‘timber’, and so on (which depends on the custom of the country), and whether the income beneficiary is ‘impeachable for waste’. (This content has been withheld because of exemptions in the Freedom of Information Act 2000)

S156 Income Tax (Trading and Other Income) Act 2005, S134 Corporation Tax Act 2009 Where woodlands in the United Kingdom are purchased by a dealer in land, so much of the cost as is attributable to trees (including saleable underwood) growing upon the land is to be disregarded in the computation of profits. If, when the land is sold, any of the trees the cost of which has been disregarded are still growing on the land, the part of the sale price that is equal to the amount disregarded is also ignored.

S25 Income Tax (Trading and Other Income) Act 2005, S46 Corporation Tax Act 2009 Commercial woodland is not within the statutory definition of farming (see BIM55051). Profits from the sale of timber from commercial woodland are outside tax, although annual payments received by farmers under certain grant schemes in respect of such woodland may be taxable (see BIM55165). See the comments in De Poix v Chapman [1947] 28TC462 at 470 by Atkinson J on the distinction between woodland and farm land with reference to its permanence of purpose and use. Receipts from the sale of trees planted on farmland should be included as part of the farm receipts (see, for example, Elmes v Trembath [1934] 19TC72). For short coppice rotation, see BIM55120

S11, S267, S768 Income Tax (Trading and Other Income) Act 2005, S37, S208, S980 Corporation Tax Act 2009 The occupation of woodlands managed on a commercial basis and with a view to the realisation of profits is wholly outside the scope of Income Tax and Corporation Tax. Thus: profits arising from the occupation of commercial woodlands are not chargeable; no relief is available for losses suffered; capital allowances cannot be claimed on capital expenditure incurred on plant or machinery connected with commercial woodlands; no relief is available for expenditure incurred on the preliminary clearance of woodland or other preparation of land for forestry purposes. The owner of a commercial woodland who lets it in return for a rent is, however, chargeable on the profits arising from a property business. Profits from the sale of trees in commercial woodlands are exempt from Capital Gains Tax, see CG73200 onwards.

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