Memorandum submitted by HM Revenue and
Customs (TNF 14)
INHERITANCE TAX
RELIEF FOR
AGRICULTURAL AND
WOODED LAND
Thank you for your letter of 25 January. You
ask about the inheritance tax ("IHT") liability position
for wooded land compared to non-wooded land.
A number of reliefs are potentially available
for wooded land, subject to all relevant conditions being met.
First, "agricultural property relief" ("APR")
is available when agricultural property has been occupied by the
transferor for the purposes of agriculture throughout the period
of two years ending with the date of transfer. For these purposes
"agricultural property" normally means agricultural
land or pasture; however, it also includes woodland occupied with
agricultural land or pasture where the occupation is ancillary
to that of the agricultural land or pasture. The relief is a full
exemption from IHT.
As you mention in your letter, we accept that
land used for short rotation coppice (ie a perennial crop of tree
species planted at high density, the stems of which are harvested
above ground level at intervals of less than 10 years) is agricultural
land used for agricultural purposes.
Should APR not be available then "business
property relief" ("BPR") may be available. This
is also an exemption from IHT for certain types of business and
business assets of trading companies that have been owned as such
by the transferor throughout the two years immediately before
the transfer. In the case of forestry businesses, relief would
be available against the value of the land and trees transferred.
More generally, transfers that take place over
seven years prior to death are also exempt from IHT.
You ask about woodland relief. This provides
for deferral of an IHT charge (if an election is made) in relation
to timber as a long-term commercial crop. The value of trees or
underwood are not charged to IHT until such time as the whole
or any part of the trees or underwood is disposed of when they
are then brought back into charge with IHT being charged on the
value at the time of disposal. The relief does not extend to the
value of the land.
In 2007-08 fewer than 100 estates declared having
timber and woodland amongst their total assets.
HMRC has made no formal assessment of the impact
of the IHT regime as an incentive to create and retain woodland
and forested land.
Finally, it may be helpful if I explain that
whilst HMRC has responsibility for implementing and maintaining
IHT, policy development is undertaken by HM Treasury. I am happy
to provide suitable contact details should the EFRA Committee
wish to discuss any proposals or recommendations with regards
to the current regime. In the meantime, I can confirm that this
reply has been seen by colleagues in HMT.
2 February 2010
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