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bigduckontax
bigduckontax, Accountant
Category: Tax
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woodland. Can the gains on woodland be inflation index linked

Customer Question

woodland. Can the gains on woodland be inflation index linked per year, from the time of purchase to the time of sale, e.g. I sold some woodland (2-04-2014), £86000,that I purchased 4 years ago (03-11-2009) £57000, It is in joint names with my wife. The net profit (£26600.00), after the purchase & selling costs plus some maintenance in the woodland. This is the only Capital gains apart from some bank interest. Do we have to pay CGT & if so how much. Thank you.
Submitted: 3 years ago.
Category: Tax
Expert:  bigduckontax replied 3 years ago.

Hello, I'm Keith and happy to help you with your question.

It is a key part of the favourable tax treatment which woodland receives is that CGT does not apply to the value of the wood as opposed to the land. Once this element of gain is deducted then the balance remaining is the only bit subject to the tax. There is an Annual Exempt Allowance (AEA) of 11K each available to offset the gain. Thus the gain is 13.3K each so, even if no wood value is excluded, the gain is reduced to 2.3K by the AEA. Gains are taxed at 18% or 28% or a combination of the two rates depending upon the taxpayers' income including the gain in the year of sale, so possible worst case scenario is slightly less than GBP 650 each of tax due.

Any gain may be available as Roll Over Relief and deferred if a reinvestment in woodland is made. Inflation linking for CGT ceased on 30 November 1993. Bank interest paid or received is either available against the trading profit in the former case or included in your income for Income Tax purposes in the latter.

I do hope I have helped you with your question.

Customer: replied 3 years ago.

Thank you Keith, However how much or how do I value 33 acres of wood/ timber (against the land), for instance would the value of the timber be reasonably priced at £15000.00, against the total value of land & timber, therefore the land sale would only have been £71000.00 & not give rise to CGT am I right ? Thanks.

Expert:  bigduckontax replied 3 years ago.
If the value of the gain on the timber is deducted from the overall gain and reduces that gain below 11K [on your figures the overall gain is some 14K] each then you are correct in your surmise that there will by no gain to assess for tax. The value of the wood itself is outside my expertise and indeed that of any tax expert on this site and you would have to seek an independent valuation from an experienced land agent.
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Expert:  bigduckontax replied 3 years ago.
Thank you for your support.