Forestry investments: still attractive after IHT rule changes?

Institutional investors – such as pension funds, family offices and even the Church of England – have long favoured investing in forestry for the long-term capital growth potential and comparatively low-volatility returns.

So far, UK forestry has rewarded this with a strong performance (see investment sector comparison). It is broadly uncorrelated to the other main asset classes and has been resilient in previous downturns – as forestry specialist fund manager Anthony Crosbie Dawson explains (you can watch the video interview below). Note, past performance is not a guide to the future.

Meanwhile, private investors have increasingly caught on to the generous tax advantages – including potentially no income tax on timber revenue or the sale of any carbon credits, nor capital gains tax (CGT) on any gain in value of the timber.

Perhaps most appealingly, investments in commercial forests qualify for Business Property Relief (BPR), so under current rules should benefit from 100% IHT relief if the investment is held at least two years and on death.

However, the most recent Budget announced changes to the IHT relief, taking effect next year.

From 6 April 2026, 100% IHT relief will apply only to the first £1 million of your BPR-qualifying assets, and anything over should get 50% IHT relief (i.e. that part of your estate would incur an IHT rate of 20% rather than 40%). This could affect estates liable for IHT that include BPR assets at the time of death on or after 6 April 2026, no matter when the investment was originally made.

If you are concerned about IHT – and provided you’re comfortable with the risks and illiquidity of forestry investing – with this tax rule change, could forestry still be an attractive investment this tax year?

Please note: investing in forestry is only for eligible investors who have sufficient knowledge and experience; it is long-term and illiquid.

Investing in forestry involves owning commercial forests – from mature, established forests to land planted for woodland creation. 

As the trees grow, you could benefit from capital appreciation in the value of both the trees and the land they are on – as well as income from selling the timber and carbon credits.

To acquire an established forest might set you back millions. Alternatively, for a much smaller outlay (from around £50k or £100k) you could invest in a forestry fund and get exposure to a portfolio of forests run by a professional manager.

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

Although tax rules around the IHT relief have become less generous – particularly for wealthier investors – forestry investment could still allow you to mitigate the impact of IHT significantly, with 100% IHT relief on the first £1 million and 50% IHT relief on the remainder of your BPR-qualifying assets.

So, if you’re concerned your loved ones may face a large IHT bill, this could still be a way to keep more of your wealth in the family.

Moreover, forestry could help add diversification to an existing portfolio of investments.

Notably, UK forestry has historically been the best-performing UK asset class over a period of five, 10 and 25 years (December 2023). And, as noted above, it is broadly uncorrelated to the other main asset classes and has been resilient in previous downturns. Albeit, please bear in mind past performance is not a guide to the future – capital is at risk.