In this section
For transfers on death only, if the person liable for tax so elects, relief may be given on the value of any trees or underwood growing on land forming part of a person's estate immediately before his death provided the woodlands are not occupied with and ancillary to the occupation of agricultural land or pasture. (S.125 IHTA 84). Such claims are not very common as business relief can often be available with more favourable consequences.
10.2 Statutory references
References in this Section are to IHTA 84, unless otherwise stated.
10.3 Meaning of woodlands
"Woodland" as referred to in s.125(1) is any land on which trees or underwood are growing. Woodlands may therefore include wooded parkland, strips of land with trees lining roads, tree belts etc, but for relief any woodlands must not be agricultural property as defined in s.115(2).
10.4 References to timber
The term "timber" in the remainder of the Section refers to "trees or underwood".
10.5 Nature of relief
Relief is given by leaving out of account the value of the trees or underwood,but not the value of the land on which they are growing although IHT may become chargeable on subsequent disposals of the timber (see para 10.11 below).
10.6 Conditions for relief
The deceased's ownership of the land must extend for five years immediately preceding the death, unless acquired by gift or inheritance (s.125(1)) and an election for relief must be made by the person liable for IHT, within two years of the death or such longer time as the Board may allow. (S.125(3)).
10.7 DV to advise CTO if woodlands are agricultural property
Although CTO will decide if the ownership condition is satisfied the DV will advise if woodlands should be excluded from relief because they are "agricultural property" as defined in s.115(2). It is considered unlikely that land dedicated under the Forestry Act 1967 ("shall not be used otherwise than for growing timber or other forest products") will be agricultural property.
10.8 Other types of relief for woodlands
See Part 2 para 10.60.
10.9 Prairie value
In woodlands relief cases the DV should value the underlying land leaving out of account the value of the trees or underwood growing on it (s.125(2)(a)), ie the "prairie value" of the land in its natural and unimproved state.
10.10 Woodlands possessing amenity value
Where woodlands qualifying for relief add to the value of any other property in the deceased's estate no reduction should be made in the value of that other property because the value of the trees or underwood growing in the woodlands is left out of account. The special valuation rule of s.125(2)(a) is regarded as applying only to the valuation of the qualifying woodlands and not to the valuation of any other property.
10.11 IHT liability
When timber left out of account in the valuation on a death is disposed of (except between spouses), whether with or apart from the underlying land, and before another death involving the same land, IHT becomes chargeable by reference to the original death (s.126). See para 10.15 below.
Tax will be charged:
- if the disposal is a sale for full consideration, on the net proceeds of the sale ,whether the disposal is of the trees or underwood or of an interest therein; or
- in any other case on the net value of the timber at the time of the disposal, even if only an interest therein is disposed of.
10.12 Allowable expenses
Section 130 provides that in determining the chargeable amount the following expenses incurred by the person liable for tax are allowable to the extent that they are not allowable for Income Tax purposes:
(i) the expenses incurred in disposing of the timber; and
(ii) the expenses (less any Forestry Commission grant received) incurred in replanting, within 3 years of a disposal (or such longer time as the Board may allow) to replace trees or underwood disposed of; and
(iii) the expenses (again, net of grant) incurred in replanting to replace timber previously disposed of, if not allowed for on the previous disposal.
10.13 Tax payable
The tax payable will be determined as if the amount chargeable was included in the value transferred on death and formed the "top slice" of the relevant estate. Where tax on timber has been deferred and the rate/s of tax are reduced before the timber is disposed of, the rate of tax appropriate to this "top slice" is that in force at the date of the disposal, irrespective of the rate of tax in force at the date of death.
10.15 Sales at open market value
When timber is sold CTO will send details of the sale to the DV asking for confirmation that it is for full consideration and provided the DV is so satisfied CTO should be informed accordingly. If the DV considers that the timber has been sold for less than its open market value as at the date of the disposal the DV should proceed in accordance with para 10.16 below.
10.16 Disposal by gifts or sales at undervalue
If the timber has been disposed of by gift or by sale at undervalue CTO will require a valuation of the timber at the date of the gift or sale in order to arrive at the net value (s.127(1)(b)). The DV's valuation for this purpose should ignore any allowable expenses as well as any obligation to replant (see 10.17). It will be the higher of:
- the value of the trees for sale for felling including any underwood; or
- the value of the standing trees or underwood as part of the transferor's estate.
The disposal may have been together with or apart from the land on which the trees or underwood are growing, but the DV's valuation will always exclude the value of the underlying land.
A valuation on basis (b) above will probably only apply when immature woodland or growing timber of high amenity value is involved. When valuing on this basis the DV should not apply the concept of loss to the transferor because the purpose of the valuation is to arrive at the net value of the timber itself.
10.17 Allowable expenses
CTO will deduct any allowable expenses of sale and replanting, if applicable (s.130(2)) in order to arrive at the net proceeds of sale (s.127(1)(a)) or the net value (s.127(1)(b)), but they may require the DV's advice or assistance in this matter.
10.18 Additional reference where transfer of value occurs
If the disposal of the timber is together with the underlying land and is a transfer of value (eg a gift or a sale at under value) CTO may require the DV to assess the value transferred. For this purpose the DV's valuation will be based on the concept of the loss to the transferor.
10.25 Relief authorised
Cases will normally be referred to the DV on Form Sect 63 and CTO will identify woodlands qualifying for relief. The DV should not assume that relief has been claimed or is applicable unless so informed. If the geographical extent of the qualifying woodlands is not clearly defined or there is any query concerning relief the DV should return the papers to CTO for elucidation.
10.26 Apparently qualifying for relief but not claimed
If timber of substantial value is involved and the conditions for relief are prima facie satisfied but no claim has been made, CTO should be informed and papers returned with a request for confirmation that relief is not be be claimed. A temporary record should be made of any other items so that work may proceed on the case. This will avoid delay and any unnecessary work in valuing timber where the parties intend to claim relief.
10.27 Death cases
Cases received from CTO should be registered in accordance with the normal procedure for IHT death cases irrespective of whether woodlands relief is applicable.
10.28 Timber disposals re deaths
A subsequent reference concerning timber disposals (whether by sale or gift) in relation to a death should be treated as a new case, type 183.
10.29 Timber disposals re lifetime transfers
Timber disposals referred as lifetime transfers should be registered as IHT lifetime gifts, case type 181.
10.30 Reporting opinions of value
In reporting the original reference from CTO of cases involving woodlands relief the DV should complete Form Sect 63 using opinion of value Appendix 2 item OV/8.
Any further reference from CTO in connection with disposals of timber is likely to be by memorandum. The DV in reply should use a form of wording based on opinion of value Appendix 2 item OV/9.
10.31 Requests for prior agreement
Where the parties intend to claim woodland relief on death they should be advised to deliver the account in the normal manner and no prior agreement should be entered into in respect of any woodlands.
10.32 Property owned by a company
See Section 16.