The National Forest - Environment, Food and Rural Affairs Committee Contents


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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