woodland taxation and valuation

Woodland Taxation and Valuation Briefng

Charles CowapDavid Lewis

RICS South East Rural Update 2014

Inheritance tax

Is Woodland:

1. A Business Asset?

2. Agricultural Property?

3. None of the above?

Woodland as a Business Asset

• Business Property Relief– Not investment business

(Balfour)

• How to demonstrate Business Nature?

Woodland as agricultural property

• Agricultural Property Relief– Nature of ‘agricultural

property’– ‘with’ and ‘ancillary’

• ‘Agricultural Value’

None of the Above

• Woodlands Relief– Prairie Value – the custom

and practice

– What the IHTA 1984 (s125) says

An example

10 acre woodland, broadleaf, Home Counties, vacant possession

Various scenarios

Values

• Freehold market value £70,000• Agricultural value £40,000• Prairie value £15,000• Value of trees and underwood £20,000

BPR

• Claim at 100% of MV

• Nil IHT

APR• Claim at 100% of Agricultural Value

(£40,000)• BPR on balance (£30,000)• Nil IHT

• BPR not available? IHT on £30,000, ie £12,000

Woodlands Relief (1)

• Value to Prairie Value• IHT due on £15,000 @ 40% = £6,000

• Further IHT on subsequent sale of timber (if ever)

Woodlands Relief (2)Literal interpretation

• Market Value – Timber and underwood value

• £70,000 - £20,000 = £50,000• IHT on £50,000 @ 40% = £20,000

No claim for relief

• Market Value at 40% IHT

• £28,000

One woodFive different IHT scenarios

• No relief: £28,000• Literal Woodland Relief: £20,000• Prairie Value Woodland Relief: £6,000• APR but no BPR: £12,000• Full BPR and/or APR: Nil

The striking impact of Amenity Value

Prairie Value

Timber and Underwood

The rest: Amenity Value? Where does this go?

Capital gains tax

Commercial Woodland and CGT

• TCGA 1992, s250• Managed• Occupier• Commercial Basis• View to realisation of profits

Value of trees is excluded

How?

• TCGA silent

• VOA Manual ‘just and reasonable basis’

Our example wood again

• Just sold for £70,000• Acquired for £30,000• Value of standing timber £20,000• Prairie value £15,000

One approach

• Deduct timber value from MV– £70,000 - £20,000 = £50,000– Apply same ratio to base cost = £21,500– Gain therefore £28,500– CGT at 28% £7,980

Another approach

• Divide the synergistic amenity value– Prairie value:standing timber: 15:20– Applied to £70,000 - £40,000 is timber

value; therefore £30,000 for land– Base cost on same basis: £12,900– Chargeable Gain therefore £17,100– CGT at 28%: £4,788

Non commercial

• CGT on full gain• £70,000 - £30,000 = £40,000• £40,000 gain at 28% CGT = £11,200

So 3 potential CGT bills

• £7,980

• £4,788

• £11,200

The moral of this story

MAKE IT AND KEEP IT

COMMERCIAL AND be able to

prove it!

We are:Charles Cowap

cdcowap@gmail.com07947 706505

www.harper-adams.ac.uk@charlescowapwww.charlescowap.wordpress.com

David Lewis

david.lewis@rau.ac.uk01285 652531

www.rau.ac.uk