Forest report shows money really can grow on trees

Tax-free timber income proves a big incentive for buyers as demand rises


By Dan Buglass
rural affairs editor
TIMBER, like oil, is reaching record prices as demand outstrips supply.
This is reflected in the annual forest market report from UPM Tilhill and Savills, which shows that in the year to 30 September, 2007 the freehold value of land under trees increased by up to 40 per cent. It also makes the point that the value of woodlands has more than doubled during the past four years. The report, which is seen as an informative guide for commercial forestry operators with more than 25 hectares under trees, is highly positive in regard to future prospects.Simon Hart, the woodland investment adviser with UPM Tilhill, one of the biggest forestry companies in Europe, managing more than 200,000 hectares in the UK with an annual output of 1.5 million tonnes of timber, said: "There is a lot of optimism in soft commodities and this includes timber."During 2007 we saw two very large transactions, one in excess of £20 million and another at over £10m, showing that the market has an appetite for big purchases when suitable property becomes available. It's clear that the long-term financial environmental benefits remain appealing to a wide range of investors."Last week's Budget spared the forestry sector from any tax increases and this is viewed as making plantations attractive for investors and their advisers. The combined package of exemptions from UK taxes provides encouragement for medium to long periods of commercial woodland ownership.On average, UPM Tilhill and Savills reckon that commercial ownership lasts for between 12 and 15 years, with inheritance tax relief remaining a significant influence and motivation. Tax-free timber income is also an incentive for buyers.Ewan Berkeley of Savills commented: "An asset that depends upon predictable, low-risk, biological growth has much to commend it. With increasing focus on carbon footprints, the credentials of sustainability grown UK timber are impossible to beat, whether as a replacement for carbon intensive plastic, steel and concrete or directly as a source of fuel. Additionally, forests can provide amenity, tax and environmental benefits."Currently, UK commercial forests produce around 8.5 million tonnes annually, which barely satisfies 20 per cent of domestic requirements. Timber production is forecast to rise by at least 50 per cent during the next 15-20 years.One of the problems over the past two years is that there has been no grant aid for planting. However, the Scottish Government, which wants to see around 10,000 hectares planted on an annual basis, has made a pledge to intr
oduce some form of assistance. Since forestry is a devolved matter Scotland would then be a better position than the rest of the UK. An announcement is expected next month.