The Gazette 1988

GAZETTE

SEPTEMBER 1988

(iii) The company will not be

liable to tax on its profits

derived f r om the forestry

operations and these profits

can be distributed to the

shareholders w i t h o ut any

liability to tax.

A sale of the

company, or a sale of the

u n d e r l y i ng

a s s e t s,

(as

o p p o s ed t o r ea l i s i ng a

f o r e s t r y

p r o f i t)

ma y,

however, give rise to a capital

gains tax liability in respect of

the increase in value over

inflation during the period of

ownership. Provided that the

period of ownership is at least

six years, the ma x i mum rate

of tax is 3 0%.

The major advantage of this

investment strategy is the ability to

o f f set interest payments against

income for tax purposes. The plan

provides tax relief on all outgoings,

i.e. interest relief (unrestricted) and

retirement annuity premiums (up to

the normal 15% of net relevant

earnings). At the same time, a tax-

f r ee

l ump

s um

be i ng

a c c u m u l a t ed

t o

r epay

t he

b o r r o w i n gs

and a

t a x - f r ee

investment is accumulating, wh i ch

also offers significant inheritance

tax advantages (see below).

Capital Acquisitions Tax

Woodlands including crops, trees

and unde rwood g r ow i ng on such

land, are qualifying property for

agricultural relief purposes. The

e f f ect of the relief is that gifts or

inheritances of forestry land and

woodlands attract relief wh i ch

c o n s i s ts of t he lesser of a

deduction of £ 2 0 0 , 0 00 and 5 0%

of the market value of the property.

It is only the net amount, less a

c o r r e s p o n d i n g ly r edu c ed pro-

portion of liabilities attaching to the

g i f t or i n h e r i t a n c e, t h a t is

aggregable for CAT purposes. In

other words, the trees as well as

the land qualify for relief, even

though the value of the former may

be many times the value of the

latter. Moreover, it is not necessary

that the donee or successor should

be a " f a r me r " within the meaning

of the CAT legislation in order to

qualify for the agricultural relief in

so far as the trees, but not the land,

are concerned. This is a highly

significant extension of the relief

and it means that anyone can

qualify. Furthermore, the relief, in

so far as it relates to harvested

trees, is not subject to a clawback

as it is in the case of other

agricultural property wh i ch is sold

within a period of six years of the

gift or inheritance.

What emerges, therfore, is a

l o n g - t e rm

e s t a te

p l ann i ng

o p p o r t u n i t y.

s hou ld

remembered that availability of

agricultural relief is not subject to

the normal rules of aggregation, so

that an individual can receive relief

of up to £ 2 0 0 , 0 00 in respect of

gifts or inheritances from any

number of sources. When one

bears in mind that the recipient

need not be a f a r me r, t he

opportunity for significant CAT

savings becomes evident.

Value Added Tax

Forestry is an exempt activity for

Value Added Tax purposes for the

simple reason that it is regarded for

the purposes of the Value Added

Tax l eg i s l a t i on as a f a r m i ng

activity.

Exemption from Value

A d d ed

Tax

can

disadvantageous status, however,

because it follows that input tax

c annot be r ec l a imed. This is

particularly so in the case of

forestry when outputs are unlikely

to arise until the crop reaches

maturity.

The Value Added Tax Exemption

may be waived. In the case of a

The

Gazette

is offering a

prize of a Lawyers Desk

Diary, 1989, and a Pocket

Diary, 1989, for the best cap-

t i on for t h is p h o t o g r a ph

wh i ch was t aken at the

E.G.M. of the Law Society on

the 5th June, 1988.

The photograph includes

(left to right) Maurice Curran,

Senior Vice President, Tom

Shaw, President, and James

J. Ivers, Director General.

Entries must be received

not later than 7th October,

1988.

WHAT ARE THE

SAYING?

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