Woodland Taxation and Valuation

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Information about Woodland Taxation and Valuation
Real Estate

Published on February 25, 2014

Author: cdcowap

Source: slideshare.net

Description

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.

Woodland Taxation and Valuation Briefng Charles Cowap David 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 wood Five 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 Timber and Underwood The rest: Amenity Value? Prairie 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 David Lewis cdcowap@gmail.com 07947 706505 david.lewis@rau.ac.uk 01285 652531 www.harper-adams.ac.uk @charlescowap www.charlescowap.word press.com www.rau.ac.uk

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