Forestry seen as an alternative investment asset to hedge against high taxes and pending capital gains tax increases, experts say

Written by Ray Clancy

Friday, 28 May 2010 10:00

Interest in the UK forestry investment market has been growing as the attractions of a long term, tangible, growing asset are being seen against an uncertain outlook for stock markets and inflation, according to experts.

Investors are also aware that higher income tax rates are likely for the foreseeable future and with capital gains tax rates set to rise, forestry offers tax free returns.

The advantages include no liability to income tax or capital gains tax on income or gains arising from the occupation of commercial forestry and 100% relief of inheritance tax, according to FIM Services, the UK’s largest forest owner with some 821,000 hectares or 29% of the overall forest estate.

Opportunities to acquire forests are expanding at a time when timber prices are increasing from historically low levels. The Forestry Commission (FC) in Scotland, as part of a rationalisation process, is transferring assets from the public to the private sector by implementing a series of disposals, increasing the supply of properties to the market, it points out.

The Scottish Government is currently seeking to encourage forestry expansion and has launched a new package of grant aid to encourage afforestation under the Scottish Rural Development Plan. The grant aid includes a combination of capital grants and annual payments over 10 years for this type of project which generate a surplus over the cost of establishment.

‘The SDRP is actively encouraging expansion of forestry in Scotland. The grants provide an attractive income profile for 10 years as the crop is established and allows low productive, marginal land to be converted into highly productive forests,’ said Richard Crosbie Dawson, managing director at FIM.

Opportunities include a range of investment scenarios from long term capital growth, through the acquisition of young crops or the planting of land, through to immediate income from harvesting. Timber prices have shown a strong recovery, reverting to pre-recession levels.

‘This promises to be an exciting year, with further opportunities to invest substantial sums in a wide range of commercial forests. We are focussing on large scale units which provide strong economies of scale and expand the private sector,’ added Dawson.

FIM is also launching a fundraising for the FIM Sustainable Timber & Energy LP (LP). The LP has been formed by amalgamating a number of forestry trusts into a single large scale unit comprising 7,150 hectares and a value of some £23 million.

The LP will set out to enhance returns to investors without significantly raising the risk profile from that of long term ownership of larger scale commercial plantations of high yield class Sitka spruce. Prior to harvesting timber, the properties will be managed to the internationally recognised Forest Stewardship Council (FSC) standard.

The minimum investment will be £28,750 and the closing date is 29 October 2010.

‘We see exciting opportunities to acquire substantial commercial forests to expand the LP’s portfolio and to add value through investment into sustainable renewable energy, focusing on wind, hydro and biomass,’ explained Dawson.