It is common knowledge that commercial forestry can be key to broadening and diversifying landowning portfolios, primarily due to the tax-free income, 100% relief from Inheritance tax and partially tax-free gains. The future of forestry and forest products is strengthening due to technical advances, political backing and increasing renewable energy demand. The environmental benefits provided by woodlands include its habitat provision, carbon sequestration and flood risk alleviation. Socially, the recreational and health benefits associated with time spent in woodland add further strength to its branches in being a key player in its provision of public good.
In addition to the above, forestry has promise as an investment. Forestry investment provides a long-term capital return, with annual returns of 13.9%. The first income is available after approximately 15 years on the most productive sites. A driver of the return is the increasing timber prices which according to Forest Research (2017) have been showing a positive trend since 2003.
Future trade and demand for forestry products is also on a steady increase, as softwood availability in Great Britain shows a declining trend until 2050. This decline in availability could lead to a further increase in the UK importing forest products, however the value of the pound in Europe leads to the UK being seen as a less attractive market which could dampen interest. Because of the declining availability, the manufacture of wood products in the UK has been steadily increasing. Timber exports have shown growth in recent years and were worth £1.9 billion in 2017.
The Committee on Climate Change (CCC) report the agricultural area of production could decrease by 30% by 2050 and it is thought that the agricultural area will be diversified to more woodland. The governments current ambition for afforestation to reach net-zero emission by 2050 is to increase tree planting to 20,000 hectares a year.
The government incentivises woodland planting to landowners and farmers through the Countryside Stewardship Scheme (CSS), and there will be a new Environmental Land Management Scheme in the future.
Countryside stewardship grants are available in Mid-Tier applications for woodland creation, management plan grants and woodland tree health grants. These grants are available all year round, and the Woodland Creation Scheme provides a grant of up to £6,800 per ha for capital items covering both planting and protection.
In addition to the above the Woodland Carbon Fund targets large scale woodland creation. The site must be over 10 hectares in size and must achieve multi-functional targets with open space, improved public access to woodland, and improved landscape scale opportunities. Funding includes the trees, guards, fencing and gates, forest roads, and recreational infrastructure. In year 5 one of capital payments of £1,000 per hectare is available for successful establishment.
As mentioned previously, a common incentive to plant or purchase woodland is the tax benefits. Commercial forestry Business Property Relief comes into play after two years of ownership. In addition, no capital gains tax is applicable, and sales of timber are not subject to income tax where the woodland is ran commercially.
The risks associated with woodland investment are soil quality, exposure, wind damage, natural predation, pests and diseases. Therefore, forest expertise and management goes hand in hand with successful and profitable forestry.
The real opportunists in forestry as I see it in the future are upland landowners or farmers that can take advantage of strategic planting on marginal land. These farmers can increase productive output per acre and provide a broadened income stream in times when agricultural markets may be weakening.
The positive implications of forestry investments are diverse and exceed the traditional objectives which typically drive investment. However, in all investments there are risks, and with a living investment some of these risks are related to the natural environment. The outputs of a living investment in forestry can be limited or reduced due to wind damage, fire damage and pest damage from squirrels and deer species. There are also the unknown future effects such as climate change and the spread of disease which could have devastating effect.
As an industry we are already seeing policy focusing on environmental benefits and how these transpire in to “public good.” It would seem that forestry is a multifaceted land use with significant potential in the future.
If you would like to discuss the opportunites relating to commercial forestry please contact a member of our Farm team within your regional office: