The IHT-beating investment most experienced investors overlook

Archived article

Archived article: please remember tax and investment rules and circumstances can change over time. This article reflects our views at the time of publication.

Are you concerned a sizeable chunk of your wealth might be eaten up by inheritance tax when you die?

If so, you might like to watch this video.

It gives you the main facts about a surprisingly simple but often overlooked way to protect your wealth from inheritance tax. 

I'm talking about investing in forestry. It is highly tax efficient. Moreover, its performance over the past five and 10 years has been exceptional – better than UK equities, bonds and property, although this is not a guide to the future. 

Why could experienced investors consider forestry? What could it add to a portfolio? What are the benefits and risks? Watch our short video interview with two respected forestry managers to find out. 

How do forestry investments work?

The principle is simple. You invest in commercial forests for the long term. The trees – predominantly Sitka Spruce, a hardy, fast-growing conifer well suited to Britain’s climate – sit on the hillside and grow. As they do so, you should benefit from capital appreciation in the value of the trees (and the land they are on) and from any income produced by harvesting the trees and selling the timber – from the main part of the tree which is used for construction, down to the offcuts, twigs and chippings which are used for biomass.

Investment in forestry is a long-term commitment – possibly 7 years or more – and a forest is by its nature a very illiquid asset. But if you’re comfortable with that, it can have significant tax benefits and once established requires comparatively little upkeep.

Excellent performance track record

According to the IPD UK Annual Forestry Index, UK forestry has been the best-performing asset class over both a five and 10-year period and the second-best over a 25-year period, producing an annualised return of 9.2% (December 2017). Moreover, forestry is broadly uncorrelated to other main asset classes. Please remember, past performance is not a guide to the future.

Annual performance total return – to 31 December of each year

2017 2016 2015 2014 2013
UK forestry 13.9% 10.7% 10.8% 18.4% 15.8%
Equities 11.8% 19.2% -2.2% 0.5% 18.5%
Bonds / Gilts 1.8% 7.9% 1% 11.8% -5.2%
Property 9.6% 3.9% 13.1% 17.8% 10.7%

Source: FIM, to 31 December 2017. Please remember, returns are not guaranteed and past performance is not a guide to the future.

Tax benefits of forestry investments

Investment in UK commercial forestry can have significant tax benefits: 

  • Inheritance tax: 100% IHT relief after two years due to Business Property Relief, provided you still hold the investment on death 
  • Income tax: there is no liability to income tax on timber revenue
  • Capital gains tax: no CGT on any gain made on the value of the timber. The underlying land is subject to CGT although most of the gain would be in the value of the timber 

Please remember tax benefits depend on circumstances and tax rules can change.

How could you invest in forestry?

You could buy and manage a forest yourself. This could set you back at least £1 million. A popular alternative is to invest through a forestry fund: for a much smaller outlay you could buy into a large and diversified forestry portfolio, run by a professional manager.

Before sending you details on any current forestry deal we are required to check if you are eligible. If you are interested, please request more information by completing the form below and we'll be in touch with next steps.

Request more information on forestry – no obligation

Wealth Club aims to make it easier for experienced investors to find information on – and apply for – tax-efficient investments. You should base your investment decision on the provider's documents and ensure you have read and fully understand them before investing. This review is a marketing communication. It is not advice or a personal or research recommendation to buy the investment mentioned. It does not satisfy legal requirements promoting investment research independence and is thus not subject to prohibitions on dealing ahead of its dissemination.