Find out what’s happening in the property investment arena both in the UK and internationally
Pay Less Tax With Forestry Investment
August 27, 2009Article by Ray Withers
Mention commercial property and people’s minds straight away conjure up images of offices, factories and retail parks – but one of the best commercial wealth generators is often overlooked.Branching out in to a commercial forestry investment at home or abroad not only helps the planet and you bank balance but also come with tax benefits as well.After two year’s ownership, a commercial forest or woodland prunes tax bills by qualifying for capital gains tax rollover relief and is exempt from inheritance tax.
Special tax rules mean buying and selling forests for property traders is difficult, but with clever tax planning, taking in a premium for an option on the property does not trigger tax as an investor may lose control of the investment but retains ownership while someone else pays all the bills.
If the option buyer does exercise their opportunity, this will of course be a taxable transaction, but the cash profit can be rolled in to another sustainable hardwood investment to delay the fateful day of payment.And that might be put off forever because special tax rules say an investor’s capital gains tax dies with him or her if the money is put in to forests and woodlands.
Straight away, investors can see why timberland investment is becoming a popular alternative to standard property and equities.The tax benefits don’t stop there either. As a commercial investment, a self-invested personal pension (SIPP) or a qualifying recognised overseas pensions scheme (QROPS) accept timberland as investments with all the tax benefits pensions afford investors.
The return on investment from sustainable forestry can be astonishing. For a minimum buy-in of £10,000 – £12,000 – plus pension set up costs if you are using a SIPP or QROPS wrapper, – can grow in 15 years to a stack of teak lumber worth about £250,000.
This is one of the crucial points of the tax strategy – growing timber to harvest is a commercial activity, so attracts all the tax benefits of owning and running a business rather than those of investment.The timber investment does not have to be rooted in the UK, if you are a UK resident, then considering financing sustainable timber management through a SIPP is a good way to move forward.If you are a non-UK resident or expat, considering a similar scheme through a QROPS.
Typical investment opportunities are offered by Property Frontiers, an Oxford based international property consultant, with hardwood investment plans in Sri Lanka and Sabah, Malaysia.