435 / 822
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.
12
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
is
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.
It
s hou ld
be
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.
16
Exemption from Value
A d d ed
Tax
can
be
a
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?
199