Woodland owners: tax guidance
Woodlands may be eligible for certain tax reliefs and exemptions, depending on the type of woodland and its purpose.
Commercial woodlands
Inheritance Tax
When a landowner dies, Agricultural Relief will not be available for woodlands on their estate that are used for the production of commercial timber.
Business Relief may be available where:
- the woodlands are being actively used in a business
- the rules excluding investment businesses from business relief do not apply
If the woodlands qualify for 100% Business Relief, Inheritance Tax will not be chargeable in relation to either the land or the trees. To find out how to claim Business Relief, see Business Relief for Inheritance Tax.
If the woodland does not qualify for Agricultural Relief or Business Relief, but the trees or underwood are growing, Woodlands Relief may be available.
This is because growing trees may take several generations to mature. Subject to certain conditions being satisfied, Woodlands Relief ensures that Inheritance Tax is not charged on successive deaths during this time.
Where Woodlands Relief is available, you can elect to exclude the value of the trees or underwood (but not the land itself) from the value of the estate. Inheritance Tax is instead paid when the trees are sold, given away, or otherwise disposed of.
For full guidance on Woodlands Relief, and for information on eligibility, see section IHTM04371 of the HMRC Inheritance Tax manual.
Income Tax and Corporation Tax
Income Tax and Corporation Tax do not apply to woodlands managed on a commercial basis and with a view to making profits.
This means that:
- income from the sale of timber from the ownership of commercial woodlands is exempt from both Income Tax and Corporation Tax - the exemption only applies if the timber cut or felled is not altered or transformed prior to sale
- profits arising from the occupation of commercial woodlands are not chargeable
- capital allowances cannot be claimed on capital expenditure incurred on plant or machinery connected with commercial woodlands
Note that if the woodland is connected with or attached to an existing farming trade, special consideration will have to be given as to the tax status of the operation.
Relief is not available for:
- losses suffered
- expenditure incurred on the preliminary clearance of woodland of woodland or other preparation of land for forestry purposes
For more information, see section BIM67701 – Woodlands of the HMRC Business Income Manual.
VAT
Where registered, VAT must be charged on all timber sales. For more information see VAT: detailed Information.
Capital Gains Tax
Profits from the sale of trees in commercial woodlands are exempt from Capital Gains Tax. This exemption applies whether the trees are standing or have been felled.
A growing timber crop (but not the land it grows on) is exempt from Capital Gains Tax, where managed as a commercial investment.
For more information, see the section CG73200 – Woodlands: commercial woodlands of the HMRC Capital Gains Manual.
Amenity woodlands
Inheritance Tax
Where the estate of someone who has died includes amenity woodland that is not used to produce commercial timber, it will most likely not qualify for Agricultural Relief.
The woodland may qualify for Agricultural Relief if the land is occupied with, and that occupation is ancillary to, agricultural land or pasture. This could include:
- woodland shelter belts
- game covert
- fox coverts
- coppices grown for fencing materials on the farm
- clumps of amenity trees
- spinneys
Where the land does not qualify for Agricultural Relief, Business Relief may be available under the Inheritance Tax rules. For more information, see section IHTM24032 – Agricultural property: Woodlands of the HMRC Inheritance Tax Manual.
Short-rotation coppice
Short rotation coppice is where high-yielding varieties of either willow or poplar are densely planted and harvested on a 2 to 5 year cycle. The roots (or stools) are not disturbed and send up shoots, which are cut down to ground level and used for fuel.
Income Tax and Corporation Tax
The statutory definitions of farming say that the cultivation of short rotation coppice is considered husbandry. This means it is classed as farming and not woodland for Income Tax and Corporation Tax purposes.
Inheritance Tax
For Inheritance Tax purposes, short rotation coppice is considered agricultural land, and buildings used in connection with its cultivation are regarded as farm buildings.
Where the estate of someone who has died includes such land and buildings it may qualify for Agricultural Relief. For more information see Agricultural Relief for Inheritance Tax.
VAT
A reduced rate of VAT may apply to supplies of fuel and power for qualifying use, including wood. For more information, see Fuel and power (VAT Notice 701/19).
Short rotation forestry
Inheritance Tax
For Inheritance Tax purposes, trees planted and harvested with a longer rotation than 10 years may not qualify for Agricultural Relief but could qualify for Business Relief or Woodlands Relief. This is because they could be considered a form of commercial woodland. See Commercial Woodlands section for more details.
Agroforestry
Agroforestry systems exist where trees are designed to be a part of productive agricultural land.
This could provide multiple sources of income for farmers, through crops and livestock, and then through forestry products such as fuelwood or fruits and nuts.
For information on how agroforestry can affect Basic Payment Scheme eligibility, see How agroforestry works with the Basic Payment Scheme.
Inheritance Tax
Where the estate of someone who has died includes woodlands used for agroforestry, it may qualify for Agricultural Relief if the land is occupied with, and that occupation is ancillary to, agricultural land or pasture. This could include:
- woodland shelter belts
- game covert
- fox coverts
- coppices grown for fencing materials on the farm
- clumps of amenity trees
- spinneys
For more information see Agricultural Relief for Inheritance Tax.
Where the land does not qualify for Agricultural Relief, it could be considered commercial woodland and may qualify for either Business Relief or Woodlands Relief. See Commercial Woodlands section for more details.
Ancient semi-natural woodlands; woodland sites of special scientific interest
Ancient semi-natural woodlands are, or could be, included on the inventories of Ancient Woodland kept by Natural England.
Conditional Exemption Tax Incentive Scheme
To preserve and protect national heritage for the benefit of the public, the government introduced the Conditional Exemption Tax Incentive Scheme.
Buildings, land (including woodland), works of art and other objects that qualify under the scheme might be exempt from Inheritance Tax and Capital Gains Tax. These property types are called ‘heritage properties’ by HMRC.
To be eligible you must own ancient semi-natural woodlands which are, or could be, included on the inventories of Ancient Woodland kept by Natural England and Scottish Natural Heritage. HMRC will consider your case for conditional exemption from capital taxes based on scientific, scenic or historic value.
If you own other woodlands on ancient woodland sites, such as new plantations, you might qualify for tax relief if your site satisfies the criteria relating to land of outstanding scenic or historic interest.
Conditional Exemption cannot be granted unless reasonable access is ensured. For more information, see HMRC Capital Taxation and the National Heritage.
Stewardship agreements and the Conditional Exemption Tax Incentive Scheme
If your land is currently under either Environmental Stewardship or Countryside Stewardship schemes with Natural England, your grants may be affected by the Conditional Exemption Tax Incentive Scheme.
See Environmental Stewardship for heritage properties for information on how Environmental Stewardship grants apply to land that is exempt from Inheritance Tax as a heritage property.
See Countryside Stewardship for heritage properties for information on your options and which capital items are available on land exempt from Inheritance Tax as a heritage property.
Carbon and other ecosystem service units generated from woodland
Inheritance Tax
Where the estate of someone who has died includes woodlands used to generate credits to offset the production of carbon and other gases connected to climate change, Agricultural Relief will not be available.
Business Relief may be available under the Inheritance Tax rules where the woodlands are being actively used in a business and the rules excluding investment business do not apply. For more information, see Business Relief for Inheritance Tax.
Where the business is generating credits under the Woodland Carbon Code or the Peatland Code alongside other activities, the generation of credits and the land employed for this purpose will generally be considered a non-investment activity. For more information, see section IHTM25253 – Other relevant business property: Land use under the Woodland and Peat Carbon Codes of the HMRC Inheritance Tax Manual.
Income Tax, Corporation Tax and Capital Gains Tax
Where woodlands are signed up to the Woodland Carbon Code or Woodland Guarantee Scheme, profits arising from the commercial occupation of woodlands are not chargeable to Income Tax and Corporation Tax and the value attributable to trees is exempt from Capital Gains Tax. See Commercial Woodlands section for more details.
VAT
HMRC’s policy on the VAT treatment of carbon credits is set out in the VAT Supply and Consideration manual.
Leasing your land to create a woodland or leasing your woodland
If you lease land on which woodland is created, or if you acquire a woodland and lease it, any profits arising will be taxable as part of your property business. For more information, see section BIM67701 – Woodlands of the HMRC Business Income Manual.
Last updated 15 December 2023 + show all updates
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Under England Trees Action Plan (ETAP) action 2.11, Defra committed to reviewing guidance on the tax treatment of trees and woodlands, to provide greater clarity to landowners on how new and existing trees on their land affect tax liabilities. The guidance has been updated to provide high level tax information for the most common circumstances and those specific areas flagged by stakeholders in pre ETAP consultation responses.
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First published.