Section 10: woodlands
The Valuation Office Agency's (VOA) technical manual relating to Inheritance Tax.
Part 1 : Relief for non-agricultural Woodlands
For transfers on death only, if the person liable for tax so elects, relief may be given on the value of any trees or underwood growing on land forming part of a person’s estate immediately before his death provided the woodlands are not occupied with and ancillary to the occupation of agricultural land or pasture. (S.125 IHTA 84). Such claims are not very common as business relief can often be available with more favourable consequences.
References in this Section are to IHTA 84, unless otherwise stated.
“Woodland” as referred to in s.125(1) is any land on which trees or underwood are growing. Woodlands may therefore include wooded parkland, strips of land with trees lining roads, tree belts etc, but for relief any woodlands must not be agricultural property as defined in s.115(2).
The term “timber” in the remainder of the Section refers to “trees or underwood”.
Relief is given by leaving out of account the value of the trees or underwood,but not the value of the land on which they are growing although IHT may become chargeable on subsequent disposals of the timber (see para 10.11 below).
The deceased’s ownership of the land must extend for five years immediately preceding the death, unless acquired by gift or inheritance (s.125(1)) and an election for relief must be made by the person liable for IHT, within two years of the death or such longer time as the Board may allow. (S.125(3)).
Although CTO will decide if the ownership condition is satisfied the DV will advise if woodlands should be excluded from relief because they are “agricultural property” as defined in s.115(2). It is considered unlikely that land dedicated under the Forestry Act 1967 (“shall not be used otherwise than for growing timber or other forest products”) will be agricultural property.
See Part 2 para 10.60.
Valuation of land without the growing timber
In woodlands relief cases the DV should value the underlying land leaving out of account the value of the trees or underwood growing on it (s.125(2)(a)), ie the “prairie value” of the land in its natural and unimproved state.
Where woodlands qualifying for relief add to the value of any other property in the deceased’s estate no reduction should be made in the value of that other property because the value of the trees or underwood growing in the woodlands is left out of account. The special valuation rule of s.125(2)(a) is regarded as applying only to the valuation of the qualifying woodlands and not to the valuation of any other property.
Subsequent disposal of timber
When timber left out of account in the valuation on a death is disposed of (except between spouses), whether with or apart from the underlying land, and before another death involving the same land, IHT becomes chargeable by reference to the original death (s.126). See para 10.15 below.
Tax will be charged:
- if the disposal is a sale for full consideration, on the net proceeds of the sale ,whether the disposal is of the trees or underwood or of an interest therein; or
- in any other case on the net value of the timber at the time of the disposal, even if only an interest therein is disposed of.
Section 130 provides that in determining the chargeable amount the following expenses incurred by the person liable for tax are allowable to the extent that they are not allowable for Income Tax purposes:
(i) the expenses incurred in disposing of the timber; and
(ii) the expenses (less any Forestry Commission grant received) incurred in replanting, within 3 years of a disposal (or such longer time as the Board may allow) to replace trees or underwood disposed of; and
(iii) the expenses (again, net of grant) incurred in replanting to replace timber previously disposed of, if not allowed for on the previous disposal.
The tax payable will be determined as if the amount chargeable was included in the value transferred on death and formed the “top slice” of the relevant estate. Where tax on timber has been deferred and the rate/s of tax are reduced before the timber is disposed of, the rate of tax appropriate to this “top slice” is that in force at the date of the disposal, irrespective of the rate of tax in force at the date of death.
References on timber disposal
When timber is sold CTO will send details of the sale to the DV asking for confirmation that it is for full consideration and provided the DV is so satisfied CTO should be informed accordingly. If the DV considers that the timber has been sold for less than its open market value as at the date of the disposal the DV should proceed in accordance with para 10.16 below.
If the timber has been disposed of by gift or by sale at undervalue CTO will require a valuation of the timber at the date of the gift or sale in order to arrive at the net value (s.127(1)(b)). The DV’s valuation for this purpose should ignore any allowable expenses as well as any obligation to replant (see 10.17). It will be the higher of:
a) the value of the trees for sale for felling including any underwood; or b) the value of the standing trees or underwood as part of the transferor’s estate.
The disposal may have been together with or apart from the land on which the trees or underwood are growing, but the DV’s valuation will always exclude the value of the underlying land.
A valuation on basis (b) above will probably only apply when immature woodland or growing timber of high amenity value is involved. When valuing on this basis the DV should not apply the concept of loss to the transferor because the purpose of the valuation is to arrive at the net value of the timber itself.
CTO will deduct any allowable expenses of sale and replanting, if applicable (s.130(2)) in order to arrive at the net proceeds of sale (s.127(1)(a)) or the net value (s.127(1)(b)), but they may require the DV’s advice or assistance in this matter.
If the disposal of the timber is together with the underlying land and is a transfer of value (eg a gift or a sale at under value) CTO may require the DV to assess the value transferred. For this purpose the DV’s valuation will be based on the concept of the loss to the transferor.
Procedure
Cases will normally be referred to the DV on Form Sect 63 and CTO will identify woodlands qualifying for relief. The DV should not assume that relief has been claimed or is applicable unless so informed. If the geographical extent of the qualifying woodlands is not clearly defined or there is any query concerning relief the DV should return the papers to CTO for elucidation.
If timber of substantial value is involved and the conditions for relief are prima facie satisfied but no claim has been made, CTO should be informed and papers returned with a request for confirmation that relief is not be be claimed. A temporary record should be made of any other items so that work may proceed on the case. This will avoid delay and any unnecessary work in valuing timber where the parties intend to claim relief.
Cases received from CTO should be registered in accordance with the normal procedure for IHT death cases irrespective of whether woodlands relief is applicable.
A subsequent reference concerning timber disposals (whether by sale or gift) in relation to a death should be treated as a new case, type 183.
Timber disposals referred as lifetime transfers should be registered as IHT lifetime gifts, case type 181.
In reporting the original reference from CTO of cases involving woodlands relief the DV should complete Form Sect 63 using opinion of value Appendix 2 item OV/8.
Any further reference from CTO in connection with disposals of timber is likely to be by memorandum. The DV in reply should use a form of wording based on opinion of value Appendix 2 item OV/9.
Where the parties intend to claim woodland relief on death they should be advised to deliver the account in the normal manner and no prior agreement should be entered into in respect of any woodlands.
See Section 16.
Part 2 : “Woodlands Relief” Not Applicable
Necessity for woodlands valuation to include trees and underwood
Any transfers of value (whether lifetime or on death) of woodlands which are agricultural property as defined in s.115(2) IHTA 1984 (ie. occupied with and ancillary to the occupation of agricultural land or pasture) will always include the value of the timber (ie. trees or underwood).
Lifetime transfers of non-agricultural woodlands will always include the value of the timber, as will be the case in transfers on death, if an effective election for woodlands relief has not been made; but see Part 1 para 10.26 if it is considered that a claim for relief might be substantiated.
The value of immature plantations should reflect the prospect of trees growing to maturity and becoming saleable as timber, either standing or felled. Regard should be had to the value of any underwood.
Valuation considerations
If the woodlands are the subject of a dedication covenant under the Forestry Act 1967, or any other agreement with the Forestry Commission, the deed or agreement should be inspected particularly with regard to the plan of operations showing the future programme for planting, thinning and clear felling. The deed or agreement will also disclose what financial assistance is provided by the Forestry Commission in respect of replanting and maintenance.
The market value of such woodlands will usually be the figure a purchaser would give in order to own and manage the woodlands for the main purpose of timber production on a long term plan under skilled supervision.
If the woodlands are not dedicated nor the subject of any other agreement with the Forestry Commission, the DV should check the office records as to whether any of them are the subject of Tree Preservation Orders under s.60 T & CPA 1971. Such Orders can only be made where it is expedient in the interest of amenity and, exceptionally, in certain circumstances for woodlands which are the subject of dedication covenants or contributions by the Forestry Commission towards the cost of upkeep. (See s.60(7) T & CPA 1971).
If there is such an Order, purchase by a timber merchant will normally be ruled out although selective felling might be permitted.
Tree Preservation Orders may provide for the payment of compensation in respect of loss or damage in consequence of the refusal of the permission to fell but it is necessary to inspect the particular Order to ascertain the rights to compensation.
S.9 Forestry Act 1967 prohibits the felling of any growing trees (apart from certain exceptions such as trees with a diameter not exceding three inches, coppice or underwood not exceeding six inches, thinnings not exceeding four inches, all measured 5 feet from the ground; garden and orchard trees, and a licence-free allowance of 825 cubic feet per quarter for use on the owner’s own property, but of which he may sell up to 150 cubic feet) unless a felling licence has been granted by the Forestry Commission. See Forestry (Exemptions from restriction of felling) Regulations 1951 and 1959. A licence may be subject to a replanting condition. (With regard to the Greater London area, by s.36 these provisions only apply to the Outer London Boroughs while control in the inner area may be effected by Tree Preservation Orders, where appropriate, under the T & CPA 1971).
In all appropriate cases the parties should be asked whether licences to fell have been applied for and if so with what result.
If no application has been made there is no objection in important cases to the DV informally approaching the Regional Conservator of the Forestry Commission in order to enquire what would have been the chances of a felling licence being granted for particular woodlands if application had been made at the valuation date.
In issuing licences the Forestry Commission have regard not only to the total volume, but also to age, type and condition of the timber. Generally if timber is mature, saleable and will be replanted, a licence will be issued, provided there are no overriding amenity considerations.
If a felling licence is likely to be refused it is possible that a timber merchant would not be interested and that the most likely purchaser would be a person who would invest in the timber having regard to its incremental growth with the knowledge that under s.11 Forestry Act 1967 compensation is payable if, as a result of a refusal of a licence, there is depreciation in the value of the trees which is attributable to deterioration in the quality of the timber. Reference should be made to s.11 of the Act and the Forestry (Felling of Trees) Regulations 1951 (Statutory Instrument 1951 No 1726) Reg 5, for further information in connection with claims.
The market value of woodlands may be influenced by the relatively favourable taxation of income arising therefrom and by the fact that IHT is not charged on timber felled and used for estate repairs.
Financial assistance is sometimes provided by the Forestry Commission to encourage woodland owners to restore their woods to full production.
These grants may be revised from time to time. Details of the grants payable at any relevant date may be obtained from publications of the Forestry Commission or from the local Conservator of Forests.
Other types of relief
In addition to woodlands relief for non-agricultural woodlands qualifying under ss.125-130 IHTA 1984 (see Part 1) other types of relief, as set out in the following sub-paras, may be available for woodlands generally.
Agricultural relief is available if the woodlands are occupied with, and ancillary to, the occupation of agricultural land or pasture (s.115(2) IHTA 1984) (see Section 9). If woodlands are granted agricultural relief and business relief is also granted, the business relief will be restricted to any value in excess of the agricultural value.
Business relief is available if the woodlands are run as a commercial business and the normal conditions for business relief are satisfied (see Section 11).
If woodlands relief is also granted, business relief will apply to the value of the land itself on which the trees and underwood are growing and to the remaining assets of the business.
Procedure
No prior agreements should be entered into in respect of lifetime transfers. For deemed transfers on death a prior agreement may be entered into subject to the usual conditions (see Section 31) provided that, if non-agricultural woodlands are involved, the parties confirm in writing that an election for woodlands relief will not be made.
Cases received from CTO should be registered in accordance with the normal procedure for IHT life or death cases.