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