Capital Gains Tax - Land & Wood split

[kateandgus]

Hi, any advice gratefully received. We've recently bought a piece of woodland. It was sold to us by the executor of the owners estate prior to his death. The owner has since died. Facing Capital Gains Tax the executor now thinks we should have determined the split of the value of the land and the trees on it, on at the point of sale - He wants of course to say that the land value is minimal and hence his CGT liability small (and wants us to put in writing our agreement to this split). Does anyone know if there is a legal requirement to state the value in terms of land plus trees at the point of sale. And if so, should the solicitors have dealt with this? Clearly - I believe - it is in our interest to determine the land value as high as possible, to minimise any potential liability in the future, and in absolute truth, the forestry value is very low - the previous owner did plant some 10,000 trees over 20 years ago, but then failed to manage them and we will not be felling them for saleable timber.
It would be great to hear any responses to this - I've never used an online 'forum' before, so hope I've posted in the right place/way etc!

[smojo]

I don't know much about this but as you have had no replies yet I shall say this. Googling CGT on woodlands states that CGT is only applicable to the land value increase, not the standing timber. So I can see why the executer wants you to keep that value low. If you agree to a minimal value on the land, of course that will impact on you when you decide to sell as your capital gain will be inflated. I don't feel you have any commitment to the executor after the sale has been completed but if you want to play fair and keep things civilised, perhaps you could suggest that you have a two or three independent valuations done and make sure one at least one of them is organised by yourselves. Then take the average value. If any costs are involved in the valuation I would expect the executor to foot that bill from the estate of the deceased.

I recently bought my wood last year. There was no attempt by my solicitor to evaluate the land versus trees so I guess if it was a legal requirement, I am sure they would have done that. Not sure how valuations for CGT can be worked out if there was no valuation at the time of purchase though. Maybe there is some sort of general figure for that type of land in that area at that time, on record, that the Customs and Excise folk can consult.

[oldclaypaws]

The total value of the land and timber is the current market value, which you have just paid. The timber value is easy to establish. Ring either a commercial forestry contractor or someone familiar with timber values such as John Cleggs, tell them what the timber is, age and area, and ask for a best estimate of net value (sale value less extraction cost). Take that away from what you paid and you have the land value. Eg, If you paid £100,000 and have 20 acres of 30 year old conifer with a market value for pulp of £10,000, the land is worth £90,000. Unless it is a mature valuable crop of hardwood (deciduous) timber it is likely the bulk of the value will be the land. For the seller to suggest the land value is minimal is opportunist and simply trying to defer his tax liability on to you in the future. Even large plots of commercial sloping high ground with conifers typically has a value of £3000 an acre plus, there is no such thing as 'minimal value' land in the UK. Small pretty amenity parcels of woodland are currently selling in the range of £8,000- £12000 per acre. Check John Cleggs website and woodlands.co.uk to get a feel.

[SimonFisher]

I wouldn't have thought that you're under any obligation to reassess the value of the land and timber for a sale that has been concluded. The seller's estate is only now retrospectively trying to adjust the figures to give a tax advantage. They should have made it clear at the time of the sale that they were valuing the land and the timber separately. I'd decline their request.

[oldclaypaws]

Quite so Simon, I'd be tempted to tell them where to get off and you are under no obligation, except if its a large valuable piece of woodland and you were to sell it in the future, you could face the same issue as the previous vendor and it would be useful to establish the (high as possible) land value now to minimise the possibility of a future capital gains bill if or when you sell yourselves. Woodlands are currently growing in value fast, Cleggs told me something like 25% in a couple of years or 12%+ p.a., so anyone with more than £100,000 worth of woodland is likely to be using all of their £11,000 p.a. capital allowance by just sitting on it and could accumulate a future capital gains liability. On the other hand, getting a current return of 12% on anything you also enjoy, taxable or not, is pretty good compared to cash in a 1% so called 'savings' account, so its a good problem to have if in that position.

[SimonFisher]

That's what I said, isn't it? If the sale was concluded at some price and that figure is recorded at Land Registry, won't the future assumption be that that figure is the land value, so as high as it can be, and the timber was of negligible value? Or are you suggesting that the lack of a recorded declared split in the sale price of the land and the timber means it's open to some future assessment?

[kateandgus]

Thank you all so much - that's really helpful and confirms what I thought. It was a friendly transaction, and I told the executor I'd find out what I could and let him know - I shall have a look at the sites you suggest, but am confident that the wood is of negligible value due to condition and access, and will have to insist that the price paid is pretty much totally attributable to land value. I think his accountant is probably being a bit daft anyway, as with about 20 years of CG allowances, he may well have no liability anyway.

[SimonFisher]

... I think his accountant is probably being a bit daft anyway, as with about 20 years of CG allowances, he may well have no liability anyway.

The Capital Gains allowance isn't cumulative.

[kateandgus]

... I think his accountant is probably being a bit daft anyway, as with about 20 years of CG allowances, he may well have no liability anyway.

The Capital Gains allowance isn't cumulative.

Oh- sorry, don't understand - Does this mean he just gets the annual allowance for one year ?

[kateandgus]

That's what I said, isn't it? If the sale was concluded at some price and that figure is recorded at Land Registry, won't the future assumption be that that figure is the land value, so as high as it can be, and the timber was of negligible value? Or are you suggesting that the lack of a recorded declared split in the sale price of the land and the timber means it's open to some future assessment?

Interested to hear a response to this - to determine whether there is a benefit in recording a valuation at this point - ie. might I be in a difficult situation in the future if we haven't done it at point of sale? The seller has informed me that he has now been in touch with the estate agent and asked them to do a retrospective valuation.