Woodland Taxation and Valuation

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RICS Rural launched its Woodland Taxation and Valuation Briefing Paper at the RICS South East Rural Update, Paddock Wood in Kent on 24 February.

A link and introduction to the full briefing paper can be seen here:

http://www.rics.org/uk/knowledge/news-insight/news/woodland-taxation-and-valuation--a-professional-briefing-paper-for-surveyors-1st-edition-february-2014-/

David Lewis and I used these slides to cover the key points in the papers, including some worked examples.

Published in: Real Estate
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Woodland Taxation and Valuation

  1. 1. Woodland Taxation and Valuation Briefng Charles Cowap David Lewis RICS South East Rural Update 2014
  2. 2. Inheritance tax
  3. 3. Is Woodland: 1. A Business Asset? 2. Agricultural Property? 3. None of the above?
  4. 4. Woodland as a Business Asset • Business Property Relief – Not investment business (Balfour) • How to demonstrate Business Nature?
  5. 5. Woodland as agricultural property • Agricultural Property Relief – Nature of ‘agricultural property’ – ‘with’ and ‘ancillary’ • ‘Agricultural Value’
  6. 6. None of the Above • Woodlands Relief – Prairie Value – the custom and practice – What the IHTA 1984 (s125) says
  7. 7. An example 10 acre woodland, broadleaf, Home Counties, vacant possession Various scenarios
  8. 8. Values • • • • Freehold market value £70,000 Agricultural value £40,000 Prairie value £15,000 Value of trees and underwood £20,000
  9. 9. BPR • Claim at 100% of MV • Nil IHT
  10. 10. 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
  11. 11. Woodlands Relief (1) • Value to Prairie Value • IHT due on £15,000 @ 40% = £6,000 • Further IHT on subsequent sale of timber (if ever)
  12. 12. Woodlands Relief (2) Literal interpretation • Market Value – Timber and underwood value • £70,000 - £20,000 = £50,000 • IHT on £50,000 @ 40% = £20,000
  13. 13. No claim for relief • Market Value at 40% IHT • £28,000
  14. 14. One wood Five 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
  15. 15. The striking impact of Amenity Value Timber and Underwood The rest: Amenity Value? Prairie Value Where does this go?
  16. 16. Capital gains tax
  17. 17. Commercial Woodland and CGT • • • • • TCGA 1992, s250 Managed Occupier Commercial Basis View to realisation of profits  Value of trees is excluded
  18. 18. How? • TCGA  silent • VOA Manual  ‘just and reasonable basis’
  19. 19. Our example wood again • • • • Just sold for £70,000 Acquired for £30,000 Value of standing timber £20,000 Prairie value £15,000
  20. 20. 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
  21. 21. 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
  22. 22. Non commercial • CGT on full gain • £70,000 - £30,000 = £40,000 • £40,000 gain at 28% CGT = £11,200
  23. 23. So 3 potential CGT bills • £7,980 • £4,788 • £11,200
  24. 24. The moral of this story MAKE IT AND KEEP IT COMMERCIAL AND be able to prove it!
  25. 25. We are: Charles Cowap David Lewis cdcowap@gmail.com 07947 706505 david.lewis@rau.ac.uk 01285 652531 www.harper-adams.ac.uk @charlescowap www.charlescowap.word press.com www.rau.ac.uk

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