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. 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). 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?

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

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