How to purchase a Forest for investment
Before embarking on a forestry investment it is sensible to ask yourself a number of questions to clarify your own objectives and ensure you understand what it is that you are buying. In this sense forestry is no different to any other investment. Many people however are considering buying tangible assets which they are not familiar with (trees!), and the questions to ask may be slightly different from their normal investment criteria.
The steps set out below will guide you through these in a logical manner.
Be clear on your objectives
Successful investment of any sort requires you to be clear about your objectives and expectations up front.
Is it a ‘pure play’ financial investment? Are you looking for Portfolio diversification, an attractive risk/return profile, a substantial cash flow contribution, or an investment where the capital is tied to assets whose value increases through the biological growth of trees independent from economic cycles?
Remember: Britain has a great environment for growing quality softwoods, with a well-developed timber processing industry, and a huge internal domestic demand. Also, trees continued to grow throughout the recent recession whilst other markets crashed.
What is your investment time horizon?
Forestry is a long term investment. Ask yourself: Do you want income now, or when you retire? Or are you interested in reliable long term capital growth? It is possible to match a suitable forest to your financial objectives.
Other benefits from a forestry investment
Owning a forest can provide interesting opportunities for investors who value socially responsible investment, giving benefits to air quality, climate change mitigation, biodiversity, soil conservation and flood prevention. There are also opportunities for fulfilling sporting interests.
A forest is a beautiful, growing, tangible asset to be visited and enjoyed, not locked up in a bank.
Attractive tax regime
In the UK, many investors are attracted by the favourable tax regime enjoyed by commercial forestry investments.
Currently, the tax benefits include:
- Timber sale revenue is free of Income and Corporation Tax.
- No Capital Gains Tax on growing timber.
- 100% Business Property Relief from Inheritance Tax on commercial woodlands.
Visit the ‘Taxation Matters’ tab on this website for more information regarding tax.
However, be careful not to allow the tax tail to wag the investment dog. Fundamentally, the investment has to be a sound proposition in itself.
So what should you be looking for?
About 85% of the value of your forest is in the trees themselves. With this in mind, the start point is a solid understanding of the trees, their growth rate and timber quality, when they will be harvested, and the state of the local market and prices.
Increasingly investors are concerned about the health and potential risks to their trees arising from new pests, diseases, or wind damage.
The timber has no value unless you can get it to market, so it is also important to understand the access issues. Does the forest come with rights of access for all forestry purposes, remembering that commercial harvesting requires large scale plant? What is the state of the internal roads? Who else can use them, and who pays for their maintenance? What is the attitude of the local authority to using minor local roads for timber transport purposes?
Are there further opportunities to enhance the value of your forest investment? Is it of interest to sustainable energy providers (wind or hydroelectric)? What is the sporting potential, and could this be improved? But please note it is only rarely that planning permission will be given to build a house in your forest.
There is a lot to think about, and a lot of data to collect and analyse before coming to a decision. So you need to consult with a professional investment forester in order to gain a full understanding of all the above elements.
We’re here to help you
Tilhill Forestry has a dedicated professional Investment and Property team, covering the whole of the UK, who draw not only on their own expert knowledge, but also that of our team of locally based forestry and harvesting managers who are well placed to provide a full end to end service to potential investors.
Once we understand your investment objectives we can help source a suitable property from both ‘on market’ and ‘off market’ opportunities, provide you with a full Acquisition Report including an indicative Cash Flow, professional crop measurement and assessment, advice on pricing and then support you and your professional advisors through the sale process.