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Is inheritance tax due on woodlands

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Where woodland relief (IHTM04371) is available, the person liable for the tax may elect to exclude the value of the trees or underwood (but not the land itself) from the value transferred by the chargeable transfer on the deceased’s death. Instead they will pay tax when the trees are disposed of, e.g. by sale or gift, unless the sale is to the disposer’s spouse or civil partner (IHTM11032). This deferred charge (IHTM04122) on disposal runs only until the land on which the trees were growing forms part of a chargeable transfer (IHTM04027) on another death. If there has not been a disposal between the two deaths, the deferred charge by reference to the earlier death is extinguished (without any tax becoming due) by the chargeable transfer on the later death.

Where the value of trees or underwood has been left out of the account (IHTM04371) in calculating the value transferred (IHTM04028) on the death of the deceased, then on a subsequent disposal of the trees or underwood, whether all or only part of them, and whether with or separate from the land tax is charged in relation to the death of the deceased, IHTA84/S126. A disposal will not be an occasion of charge in relation to a particular death if it is between spouses or civil partners (IHTM11032), IHTA84/S126 (2) the very same trees or underwood disposed of have previously been the subject of a disposition which occasioned a charge in relation to that death, IHTA84/S126 (3). This applies also if either of the dispositions in question is of an interest in the trees or underwood (unless the earlier disposal was of an interest for full consideration, and the current disposal is of the trees or underwood or of another interest therein - such a case should be referred to Technical , or a death has intervened, and the value transferred by the chargeable transfer (IHTM04027) made on that death is attributable in part to the land on which the trees and underwood were growing at the earlier death, IHTA84/S126 (1). As a general rule, disposals of casual windfalls of trees and underwood which have been left out of account under IHTA84/S125 should be charged to Inheritance Tax (IHT) in connection with the deceased’s death in the usual way. However enquiries about deferred IHT or Capital Transfer Tax on woodlands damaged by storms, such as those on 15/16 October 1987, early 1990, and November 2000 and any offers to pay tax on the proceeds of timber so damaged, should be referred to Technical.

Because growing trees may take several generations to mature and would otherwise be taxed on each successive death, there is a specific relief for transfers of woodlands on death, under IHTA84/S125. It is available, subject to certain conditions being satisfied, where any part of the value of a person’s estate (IHTM04029) immediately before death is attributable to the value of land on which trees or underwood are growing. This provision applies only if the land is in the United Kingdom or another state within the European Economic Area (IHTM04377) at the date of death Where the relief is available, the person liable for the tax may elect to exclude the value of the trees or underwood (but not the land itself) from the value transferred by the chargeable transfer on the deceased’s death and instead pay tax when the trees are disposed of (IHTM04121), for example, by sale or gift, other than to the disposer’s spouse or civil partner (IHTM11032). If there is a disposal, tax is charged on the next death in the usual way, unless another election is made to defer the tax.

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.

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