An investment in forestry is perhaps a little out of the norm compared with traditional stocks, shares and bonds. However the prospects for steady, long-term growth are excellent, the tax benefits are clear, the additional advantages of enjoying the investment are also apparent.
Forestry as an asset class offers the following benefits to investors:
Low Risk and Diversification
Forestry investments are considered to be low risk, as the growth is in part biological, to perform countercyclically to equities and to be less volatile than bonds. These characteristics gives the forestry asset class an important diversifying and risk-hedging quality that can be exploited in multi-asset portfolios.
- Inheritance Tax- UK forestry investments qualify for relief from inheritance tax after two years of ownership
- Capital Gains Tax- capital gains tax is only payable on land value increases
- Income Tax- no UK income tax or corporation tax is payable on timber sales
Some of these benefits can be obtained from investment in overseas forestry.
Timber prices are a major driver of forestry returns. Domestic and international demand for timber remains strong from traditional uses and more recently timber is being used to supply the energy market. Due to these buoyant markets, forestry owners are able to achieve competitive prices for their timber.
Against a background of increasing concern over environmental issues, forestry investors, having made a socially responsible investment, produce broad environmental benefits such as biodiversity, in addition to sequestering carbon dioxide, the main source of global warming.
With a total return of 20.6% in 2006, investments in forestry outperformed equities gilts and commercial property (IPD UK Forestry Index 2007)