Investment & Land Sales

The current EU and Exchequer funded Afforestation Grants & Premiums Schemes make investment in forestry particularly attractive. Generous grants mean that in general there are no costs (apart from the capital cost of purchasing the land) to the investor in establishing a plantation and managing it during the crucial first four years of the forest’s life. In addition, the investor receives a tax-free income by way of premium payments for 15 years.

Depending upon the Investors personal choice, one can decide to plant a predominantly Broadleaf Species Plantation or a Conifer Plantation, or indeed a mixture of both. The annual premiums paid on a broadleaf plantation are significantly higher than those for the conifers, however the conifer plantation does have the advantage of producing a more commercially attractive crop within the rotation. The ability of forests (in particular broadleaf species trees) to capture and store carbon has made an Investment in Forestry a very attractive option for many individuals / businesses who are looking to reduce their carbon footprint as well as making a solid investment.

SWS Forestry Services are ideally placed to identify suitable investment land for our clients. We have Foresters located throughout the country sourcing opportunities through a wide network of personal contacts including Auctioneers and Agents.

SWS Forestry Services will procure suitable land following these criteria:

• Size: Any size blocks are considered, although in general parcels will be greater than 5 HA.
• Access: Lands should adjoin a road or have a good right of way on to the public road.
• Yield Class: This is defined as the potential growth rate or yield of a forest, expressed as cubic meter per hectare per year (m3/ha/yr). For conifer plantations SWS Forestry prefer that the land is capable of producing a crop falling into a higher YC i.e. min. 22-24 m3/ha/yr
• Elevation/Exposure: Ideally prefer low-lying land with low or moderate exposure but all locations will be considered

Once the land has been identified one of our professional foresters can advise on:

• Species Selection: Having assessed the land, selection of species is critical. Broadleaves are normally confined to the rich,  low lying mineral lands mainly with grass vegetation while Conifers can adapt to a wide range of site types from grass, grass/rush, heavy rush, shallow peat soils etc.
• Annual Premium: Once species have been selected to suit the land procured an estimate of total premium per year can be calculated. Having assessed all of the above a price evaluation can be put on the property.
• Internal Rate of Return (IRR): For predominantly conifer plantations we can evaluate the projected IRR over the 1^strotation taking account of premium and harvest income.

The general price range for land considered suitable for planting ranges from €12,500 to €16,000 per hectare (€4,800 to €6,500 per acre).

Investment in forestry is generally regarded as having low associated risk. However, there are natural risks associated with forestry such as fire, disease and wind. There are also macroeconomic risks such as changes to forestry policy at national or European level, a fall in demand for timber or the addition of forest management constraints. In any investment analysis it is important to state clearly the risks considered and where possible to account for them.

Fire

Ireland has a relatively short fire risk period. Good forest management practices will reduce the risk of fire damage. SWS Forestry provide a Group Insurance Scheme to protect against any potential losses.

Disease

Due to our island status and strict enforcement of hygiene regulations Ireland is relatively disease free, however Reconstitution and Underplanting Scheme for Ash Dieback Back Disease has and continues to significantly impact upon our Ash Plantations. The DAFM Forest Service have stepped in to provide support to Forest Owners in the form of grants to replace affected ash plantations with other species.  Conifer Forests in Ireland have had no appreciable losses from disease within the last 30 years.

Wind

Ireland is a relatively windy country compared to our European neighbours. Good forestry management will reduce the threat of wind damage.

Markets

While presently very strong, timber prices can vary quite widely on an annual basis and show cyclical characteristics which reflect the state of the economy. An advantage of forestry in this regard is that it is easy to postpone harvesting if the price available is not attractive. This flexibility is a major advantage in attaining the best rate of return.

“The profits or gains arising from the occupation of woodlands in Ireland, managed on a commercial basis and with a view to the realisation of profits, shall not be taken into account for any purpose of the Income Tax Acts” Section 18, Finance Act 1969.

Income Tax

• In effect this means that Forest Grants, Forest Premiums, sale of forest thinnings and sale of clearfell are ALL exempt from Income Tax.
• Dividends paid by companies out of profits in respect of woodland income are exempt.

Capital Gains Tax (CGT)

• Gains arising on the disposal of felled timber are not chargeable to CGT. In the case of disposal of woodlands, CGT is chargeable on the lands only and not on the growing trees, subject to the inflation adjusting factor.
• Capital sums received under a policy of insurance in respect of destruction or damage of the trees is exempt from CGT.

Capital Acquisitions Tax (CAT)

• Gifts between husband and wife are exempt from CAT. A privately owned forest is liable to gift and inheritance tax when taken as a benefit under a gift or inheritance.
• Commercial forestry qualifies as agricultural property and is therefore eligible for agricultural relief.

Stamp Duty

• Any deed executed under a seal is subject to Stamp Duty, therefore a licence to cut timber is liable to Stamp Duty.
• The sale of growing timber in commercial woodlands is exempt from Stamp Duty; the sale of the underlying land is not exempt.
• Under Section 81 of the Stamp Duties Consolidation Act, 1999 land purchased by a “Young Trained Farmer” is exempt from Stamp Duty.

Universal Social Charge

The Universal Social Charge is a tax payable on gross income, including notional pay, after any relief for certain capital allowances, but before pension contributions.

The rates of Universal Social Charge are:

Universal Social Charge – Rates are as follows: 

This summary reflects the current tax legislation. As you see, the Irish Tax System looks very favourably on forestry activities. This has proved an essential element in the expansion of the forest industry in Ireland. While legislation may change, it is believed highly unlikely that any unfavourable changes will be made in the next 40 – 50 years. This is the length of time estimated for Ireland to attain the target levels of forest cover set out in the Strategic Plan for the Development of the Forest Industry in Ireland – Growing for the Future.
(as these rates can change please check with your tax advisor)