For many rural businesses, diversification will be a factor in their post-Brexit planning. Trees and woodlands can provide an all too often overlooked opportunity to add sustainable income.
Despite timber prices sitting at an all-time high, driven up by greater demand for home grown timber, evidence shows that in 2018, less than 60% of woodlands in England and Wales were in active management, meaning that government targets for bringing 67% of woodlands into management is being missed. Can Brexit encourage more landowners to start looking to their woodlands for income?
Sustainable woodland management
Someone's sitting in the shade today because someone planted a tree a long time ago – Warren Buffett
Since the 18th century a landowner’s decision to create woodlands may have been informed by factors such as landscape, game management, and shelter for livestock. However, a local supply of timber for fencing and construction, as well as a ready supply of firewood to keep the holding’s residents warm through the colder months will not have been far from the owner’s mind. The benefits and security offered by diversification for future generations may also have influenced the owner of the day.
One principle of sustainable woodland management is that one should not remove more timber than the woodland can grow in any defined period. On average, native woodlands will grow by 3-4 tonnes per hectare per year while commercial species such as sitka spruce will grow by 15-20 tonnes per hectare per year. Woodland which has seen little or no management may need significant volumes of timber removing in the first instance, allowing remaining trees to grow well, and new trees to regenerate. This can be followed by a regular cycle of longer term but lower volume harvesting long in to the future. In this way, bringing woodlands into management can improve both short and long-term income streams for rural businesses.
Payment for public goods
He who plants a tree, plants a hope – Lucy Larcom 1824-1893
Ambitious targets for the creation of new woodlands and the sustainable production of timber are set out in the Government’s 25-year Environment Plan. Tree planting is supported by government grants to help create both native and commercial woodlands. Future government schemes are set to reward landowners for creating public goods from woodlands which may include public access, carbon sequestration, biodiversity, or water and soil management.
Trees are your best antiques – Alexander Smith 1829-1867
Those with ‘unmanaged’ woodlands may be missing out on HMRC woodland management incentives. Commercial woodland is outside of the scope of income tax and corporation tax and from a capital gains tax perspective, it can be tax efficient and attract a variety of reliefs. Unprocessed roundwood timber can be sold tax free, although if you are VAT registered, the sale will still incur VAT at either 20% or 5% if sold as firewood to domestic customers. Selling the land with standing timber would usually be zero rated for VAT. Inheritance tax does not apply to those woodlands which have been owned by the transferor for two or more years and have been actively managed in such a way that allows them to be classified as a commercial asset or where the woodland is deemed to be ‘ancillary’ to an agricultural unit.
It pays to plan ahead
Chop your own wood, and it will warm you twice – Henry Ford 1863- 1947
The first step to bringing your woodlands into management is to prepare a plan. If you have more than 3ha of woodland, there are government grants and templates to help you write the plan. The outputs will present the productive potential of your woodlands while providing you with the permissions and licences to conduct the work over a 10-year period.