Short rotation coppice - tax

[Dennis]

Just stumbled on via the HMRC web-site:

http://www.opsi.gov.uk/acts/acts2007/ukpga_20070003_en_53#pt16-ch1-l1g996

Look at section 996; it says:

Meaning of “farming” and related expressions

(1) In the Income Tax Acts “farming” means the occupation of land wholly or mainly for the purposes of husbandry, but does not include market gardening (see subsection (5)).

(2) In subsection (1) “husbandry” includes—

(a) hop growing, and

(b) the breeding and rearing of horses and the grazing of horses in connection with those activities.

(3) For the purposes of the Income Tax Acts the cultivation of short rotation coppice is regarded as husbandry and not as forestry.

(4) In the Income Tax Acts “woodlands” does not include land on which short rotation coppice is cultivated.

(5) In the Income Tax Acts “market gardening” means the occupation of land as a garden or nursery for the purpose of growing produce for sale.

(6) For the purposes of this section “short rotation coppice” means a perennial crop of tree species planted at high density, the stems of which are harvested above ground level at intervals of less than 10 years.

(7) In the application of this section for the purposes of section 192(1) or 303(1) of this Act or paragraph 16 of Schedule 5 to ITEPA 2003—

(a) both references to the occupation of land, and the reference to land on which short rotation coppice is cultivated, refer to land in the United Kingdom, and

(b) the reference to the cultivation of such coppice refers to its cultivation in the United Kingdom.

- - - -

HMRC's take on it is here: http://www.hmrc.gov.uk/manuals/bimmanual/BIM55205.htm

"short rotation" is up to 10 years - see above.

This needs careful investigation. It's likely that the law only kicks in once there's income - and the key is "income", not "profit". Once the law applies fold have to tell HMRC by 5th October following the tax year in which income first arises.

[James M]

"(4) In the Income Tax Acts “woodlands” does not include land on which short rotation coppice is cultivated."

oooh - that will affect a few people. Well spotted.

[Exeldama]

Surely to benefit from inheritance tax you would only need to establish that you have generated an income however small for say firewood. So if you had documentary evidence (reciept/contract to supply regulary) that you were selling to ....errr a friend then your woodland could be considered commercial for inheritance tax purposes.???

[DaveTaz]

What percentage of woodland needs to be in short rotation coppice for it then to become "not woodland"?

Or does this mean anyone selling material from any coppice upto 10 years old is subject to this law?

May be some of us are technically farmers and not woodland managers?

By the way, how do you manage to just stumble across info like this???

[Dennis]

It looks to me as though coppicing on a rotation of 10 years or less is deemed to be husbandry, and thus deemed to be farming. This is from the income tax angle; IHT is something else besides. We own woodland which is entirely coppice (principally sweet chestnut), so we're stuck anyway. What would be tricky is the situation where part of a wood is coppiced, and part not; I'd want to argue that the non-coppice area yielded timber to which the normal exemption rules apply.

The other curious point is when does the tax man think you have started coppicing: when you buy the wood; or when you start cutting your first coup; or some other time? Old coppice yields dead stools that can be cleaned up and sold (flower arrangers pay surprising amounts for them). Is selling these before you cut any stems part of taxable coppicing activity? This is where I started looking around the HMRC web-site. But I suppose I would think of things like this. I worked before them before I retired.

Given that coppicing income is taxable, expenses are allowable. Some get a 100% deduction (e.g. insurance); some a part deduction (e.g. the business mileage on the landrover); and some gets a "capital allowance" (an annual percentage deduction of the cost of, say, a tractor. A small log-splitter or a chainsaw might get the allowance in as little as four years). And paying a contractor or someone else to do your coppicing should be tax -deductible

The other thing is that setting up costs may be allowable - "pre-trading expenditure" is the official description.

The pain the neck is the requirement to keep business records for almost 6 years after the end of the tax year to which they relate. There are hefty fines for destroying them. Considering that we are into very small scale coppicing, it's a nuisance.

You can see that we might all quite easily prove that we're making losses not profits. HMRC thought of hobby farmers years ago (there were too many wealthy people playing the game, you see). So the rules kick in if you make a series of losses. Five years in a row is acceptable. A year 6 loss claim would be blocked. You'd be surprised how many people scrape a profit every 6th year.