Woodland taxation in the Republic of Ireland
Income from the occupation of woodlands in the State, managed on commercial basis and with a view to the realisation of profits, is exempt from Income Taxes for individuals and companies regardless of their residence or domicile.
The High Earners Income Tax restriction which limited the exemption to €80,000 per annum is abolished from 1/1/2016.
Woodland Grants are not treated as income but in the preparation of Annual Accounts by an owner the cost of planting and maintenance should be shown as net of grants received.
PRSI: Income from commercial woodland, including the forest premium, is reckoned for the purposes of PRSI.
Universal Social Charge: Income from commercial woodlands, including the forest premium, is reckoned for the purposes of USC.
Rates of Charge:
1% on income up to €12,012
3% on income from €12,013 to €18,668
5.5% on income from €18,669 to €70,044
8% on income from €70,044 to €100,000
11% over €100,000 on Self-employment income only
CGT: Commercial woodlands occupied by individuals are exempt from CGT on the growing timber. The underlying land is not exempt but chargeable gains are restricted to the surplus over inflation adjusted cost. CGT is not applicable to a disposal on death. The exemption does not apply to companies which occupy woodlands. The current rate of CGT is 33%.
VAT: Commercial forestry operation is regarded as agricultural production and exempt from VAT but the exemption may be waived. It may be efficient to waive exemption and this recover VAT on all the inputs of goods and services supplied to the woodland occupier.
Repayments of VAT are made promptly even though the woodland may not produce any taxable supplies for many years. Once registered for VAT, any supply by the woodland, including disposal, will attract a charge to VAT.
An unregistered woodland owner can add flat rate VAT of 5.2% to an invoice to compensate for VAT inputs that were incurred but cannot be recovered. The invoice must make it clear that the owner is not registered and that it is merely the flat rate refund.
Non-residential property: 2%
Residential up to €1m: 1%
Over €1m: 2%
Transfers of property between spouses and within group related companies are exempt.
Growing timber in commercial woodlands is exempt from Stamp Duty but the underlying land is not.
Capital Acquisitions Tax (CAT) i.e. (Inheritance and Gift): Commercial woodlands in the State are subject to CAT on gifts to, or inheritance by, individuals regardless of the residence or domicile of the disponer and beneficiary. In addition to specific exempt thresholds, relief is available to commercial woodlands as agricultural property.
The relief, as a reduction in market value is as follows:
- A flat rate reduction of 90% applies to both inter-vivo gifts and inheritance of commercial woodlands.
- All gifts and inheritance between husband and wife are exempt from CAT.
- The woodlands can be located in any member State of the European Union and still attract Agricultural Relief.
Agricultural relief is restricted and is subject to the ‘80% agricultural property’ test and ‘active farmer’ requirements. The recipient of the woodlands must retain them for 6 years but can sell and purchase replacement woodlands in the 6 year period without losing the 90% Relief. Sale of Timber in the 6 year period does not affect the Relief.
Where a beneficiary of a Gift or Inheritance cannot qualify for Agricultural Relief because less than 80% of their assets are in Agricultural property, they must be in a position to claim Business Relief. Like Agricultural Relief, it allows a 90% discount from market value to arrive at the taxable value of a Gift or Inheritance. However there are some differences in the conditions to qualify for Business Relief compared to those for Agricultural Relief and advice should be sought.
Relevant Contract Tax: This is not a tax on forestry but is a procedure to ensure tax compliance by forestry contractors. It can apply where a forest owner engages a contractor to harvest timber. If in doubt Revenue should be contracted and set procedures followed. Revenue will then instruct on any relevant deductions.
The above information is based on the Law at 28/10/2015 and is a general summary only. All readers are advised to take independent advice on any tax or associated issues relating to their forestry.
Contact us for advice on taxation and forestry.