As the UK strives to hit ambitious environmental targets, landowners are fixing their gaze a little higher than usual.
Investing
"Timber values are currently strong because of housebuilding and biomass, just two of the markets driving demand."
"Woodland and
forestry appeals on
a number of levels"
The future of woodland and forestry for landowners and investors
PUTTING DOWN ROOTS
Trees form a vital element in the government’s 10-point plan to achieve net zero carbon emissions by 2050; woodland stores carbon, boosts biodiversity and brings to the table associated benefits such as flood mitigation.
And with Defra committing to plant 30,000ha of new forestry a year by 2025, the existing incentives available for turning land over to trees are attractive, with more in the pipeline.
Woodland and forestry appeal on a number of levels; trees can be a prudent option for those looking for secure investment opportunities or, on a smaller scale, a revenue-earning operation that bolts on to existing farm and estate businesses.
Grants and tax incentives are worth considering too, not to mention the potential diversification opportunities that exist once the woodland is established.
But tree planting isn't the only route into this arena: many landowners already have small pockets of woodland that simply isn’t achieving its potential. So, whether it’s bringing existing woodland back into management, or turning hectares over to create a new project from scratch, Carter Jonas is currently dealing with a spike in interest in all that trees can deliver.
“When stocks and shares start to wobble and the world goes into crisis, people look for safer investments,” said Marc Liebrecht, Associate Partner at Carter Jonas. “Many assume that returns from forestry would be safe, steady and relatively low, but it’s actually a very good investment.” With returns in recent years reaching as high as 15-20%, canny investors are drawn to the forestry market because it brings two-fold benefits to the table: an increase in capital value and an increase in timber value.
Timber values are currently strong because of housebuilding and biomass, just two of the markets driving demand. “However, there has also been a recent shift to people adopting a more responsible approach and looking for sustainable investments,” Marc said
Woodland prices are buoyant and are continuing to rise. “A small area of woodland can sell for anything up to £25-30,000/ha,” Marc said. Average prices for commercial woodlands in 2020 was in the region of 15,000/ha but well stocked forests are selling for up to £18,000-25,000/ha.”
With future prospects for investing in woodland looking strong, what should potential investors be aware of before committing?
“Each investor will need to assess how long-term they want their objectives to be,” he said. “If you want a long-term investment you can look at the semi mature and even young crops, but if you’re only interested in the short-term then make sure you do your research on the timber available to harvest and generate revenue in that timeframe.
“Also be aware that there is a cost to restocking. But, if you’re clever, you can buy a forest, sit on it for five years, fell a section, replant it, and then sell it on. Make the objectives of your investment add up to what you want your returns to be.”
Woodland, by its very nature, is an attractive long-term investment, and Marc has noticed that people are increasingly interested in buying to plant, potentially because of the associated tax benefits. “Timber income is still tax-free and there is the benefit of IHT relief. Once the woodland is transferred, it only has to be in your ownership for two years before you get the rollover relief on inheritance tax – provided it is run as a business. With normal assets it is seven years,” Marc explained.
“Capital Gains Tax on your asset is only charged on land value increase and not the timber value increase, so it’s a good investment long-term.
“I’m starting to hear about farmers who have planted 15ha as their pension fund. If they harvest and then replant it will become the next generation’s pension fund too.”
“Capital Gains Tax on your asset is only charged on land value increase and not the timber value increase, so it’s a good investment long-term."
Bringing woodland back into management
Outside investors are quickly realising the potential benefits woodland brings, but many estate owners who already have pockets of woodland haven’t been quite as quick to appreciate that they’re potentially sitting on an attractive income stream. Marc explains that many simply don't know that there is now value and increasingly lucrative benefits to managing woodlands.
“The issue we have is locating the many small patches of woodland, finding out who owns them and letting them know the benefits of managing it properly,” he said.
“Farmers wouldn't just leave a bad field to its own devices. They would try to improve it, and the same philosophy should apply to woodlands.
“If you leave a woodland it won’t stand still – it will start to degenerate and dilapidate, so you should always make the best of what you have and try to improve it.”
A woodland’s potential depends on what’s in it, how accessible it is and the costs involved versus the return. “You might have a small woodland with mature oak in it, which can generate a healthy income just by carrying out one operation in a dry summer across a field,” Marc said. “Or you might have a much more fragmented woodland with a pond, that is much more dilapidated – in that case, we would encourage the farmer to treat it as a firewood crop.”
“You might have a small woodland with mature oak in it, which can generate a healthy income just by carrying out one operation in a dry summer across a field”
If the woodland is over 3ha, you can apply for a Woodland Planning Grant. This is a longer process that can take up to year, but it will award the farmer with a minimum of £1,000 to produce a 10-year plan.
Regardless of how the woodland is made up, the first step will probably include selective thinning, which will require a felling license from the Forestry Commission.
“The key thing is to make sure you can get the timber out – you would be amazed how often there are woodlands with difficult access,” Marc said. “If access is poor, make sure it can be rectified and that you allow for it when you’re doing your sums in the first instance.
“If you can’t move the timber, you can’t do anything with it.”
Planting trees
Then, of course, there is another potential beneficiary of the increasing popularity of woodland – those landowners who don’t currently have any woodland but have a patch of land they believe would be suitable for such a project.
With opportunities for planting trees at an all-time high, Marc advises all landowners to at least consider woodland when estate planning.
“We won’t sell woodland creation for the sake of it,” said Marc. “If we think something else is more suitable, we will say so, and that’s where Carter Jonas’ holistic approach to land management is a clear advantage.
“It’s not a silver bullet, but planting trees wasn't even on the list of options for a long time – it’s only just started to become a serious consideration.”
"This interest is being driven by new government targets, created to drive sustainability."
This interest is being driven by new government targets, created to drive sustainability. As part of committing to net zero emissions by 2050, the Committee on Climate Change has set out ambitious targets; the UK should be aiming for 30,000ha of new woodland in the UK every year, which adds up to nearly a million hectares by 2050.
Eliminating all greenhouse gases is only achievable by removing them from the atmosphere through carbon sequestration. Trapping the carbon in trees is currently the most effective way of achieving this.
Pursuing carbon sequestration provides landowners with a strong source of revenue, while also helping them farm in an environmentally friendly manner.
The Woodland Carbon Guarantee is one such opportunity for farmers in England. Launched in 2019, the scheme is an opportunity for farmers to sell carbon units to the government and enter into a 35-year contract.
“Carbon sequestration will become important for woodland creation, particularly in England and on more marginal land,” Marc said. “I think people will start to make longer-term choices based on carbon.”
As an example, 12,000 hectares has recently been purchased in New Zealand by a group of pension funds, purely for securing carbon.
There are other financial incentives to planting trees; Defra has promised to incentivise farmers in order to reach the ambitious targets within the Environmental Land Management Schemes, although detail is still lacking.
Several grants are also available. The Woodland Creation Planning Grant is part of the larger Countryside Stewardship Grant and assists owners in putting a plan together.
The Countryside Stewardship Woodland Creation Grant is solely for woodland creation and there is an additional scheme for managing existing woodlands which opens up once a year – most recently on 9 February 2021.
"Pursuing carbon sequestration provides landowners with a strong source of revenue."
“England has best level of grant funding for tree planting we’ve ever had,” Marc said. “In theory we have 100% for planting trees.”
However, Marc advises against planting trees with securing grants in mind. “You can’t let grants drive your management,” he said. “The management has to fit the forest – then, if the grants also fit, use them. Sometimes it is best not to go for them. The cost of getting them can outweigh the benefit.”
Creating new woodlands should be considered carefully as it is a difficult decision to reverse. Once woodland is established, it falls under The Forestry Act and cannot be returned to agriculture. “This means there will be a long-term reduction in land values,” Marc said.
England has the best level of funding it has ever had, but the country doesn’t have a huge amount of the marginal land necessary that landowners would be prepared to commit to forestry for perpetuity.
“You wouldn’t think that putting a tree in the ground, or managing a tree that is already planted, would be so complicated,” Marc added. “It surprises a lot of people just how complicated it is.”
I’ve been to see prospective clients who want to chop a woodland down and plant a new one somewhere else.
I have to tell them that they can’t do that because it’s against the law, even though they own everything.
“Layers of protection are in place, but that’s where our expertise comes in.”
Diversification
The rise of diversification shows no signs of slowing down, and woodland affords many opportunities for those keen to broaden their income stream.
Once a woodland is established or managed correctly, the opportunities to generate profit don't stop there.
“Woodlands make great settings for a variety of diversifications,” Marc said. “Small woodlands are attractive for potential shoots, as they offer cover and flushing points – whereas big woodlands make it harder for the beaters to drive.
"Woodland affords many opportunities for those keen to broaden their income stream."
“Then there is potential for glamping sites, treehouses, camping, education centres, forest schools and aerial assault courses such as Go Ape.”
With so many options available, committing to one course of action could be daunting. That’s where Carter Jonas comes in.
“My knowledge of the Countryside Stewardship Scheme, together with my forest management skills, means I can put together a woodland management plan that is realistic and can match the right grants with what we’re doing on the ground,” Marc said.
“We’re dedicated to adopting a sensible approach that doesn’t commit the landowner to a huge amount of expenditure, only to achieve relatively little.”
"The rise of diversification shows no signs of slowing down, and woodland affords many opportunities for those keen to broaden
their income stream."
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