INVESTING IN FORESTRY directly vs. a fund
There are many benefits to owning woodland, not least the relative security of the investment, the (almost) tax free returns and of course the amenity value. Putting money in a managed forestry fund would appear to be a very expensive way of getting involved as opposed to buying some land either bare or planted. If one purchases land for oneself and plants it, the associated costs should be substantially less than a share in a fund and there is no commission or ongoing fees. It is frequently argued that the attraction of investing in a fund is that the amounts involved can be relatively small and therefore it is open to the smaller investor. However, many people nowadays invest as a family or in groups and once the land is purchased, the subsequent costs are virtually nil as they are all met by grants.
How much do I need to invest directly in forestry?
A sum of say €50K should be adequate to purchase 15/20 acres of bare land depending on location and quality. Land that is marginal for conventional agriculture can be ideal for forestry use. The current afforestation grants pay for the entire cost of planting, fencing and maintenance.
Alternatively, planted land at 20 years of age can be purchased for app €5/6K per acre depending of course on the quality of the crop. One must remember that at least two thirds of the cost of bare land is in anticipation of future premium income and the fact that the afforestation grants cover all the costs of establishment.
But I don’t know anything about forestry?
You don’t need to.
A qualified forester
There are many competent and trustworthy forestry companies available to both give advice and manage woodland. Timberland Forestry and The Woodland Group, both based in Galway, are long established and reputable firms as are Purser, Tarleton, Russell based in Dublin to name but three. Although they are based in Galway and Dublin, they operate throughout Ireland.
One can buy either bare farm land and then plant it or purchase a semi mature plantation that has already availed of the annual premiums. The variation in grant and premium levels means that it is far more attractive for a farmer to purchase unplanted land and enjoy the higher rate of premium. Due to the premium differential, a non-farmer might be better advised buying planted woodland at say 20 years of age and avail of the income from thinnings over the next 10/15 years and then enjoy a tax free windfall of app €8/10k per acre once the crop is fully mature and clearfelled. Semi mature woodland such as this is currently being sought after by pension funds and other non-farming investors. Suitable plots can be difficult to source but are still available, mostly from farmers who have finished drawing the premiums and wish to cash their investment.
What is the economic outlook for forestry and wood?
The future prospects for timber sales have never been better with a huge and increasing demand for wood fuel along with the demand for construction and other uses. Most of our construction timber is currently exported to Britain and France but this may change when the building industry in Ireland recovers.
How volatile is the price of planted forestry?
Forestry land has varied very little in price in real terms over the past two decades and while other property assets such as housing suffered huge falls, forestry remained stable.
How liquid is forestry investment?
Like most commodities, good forests with good access and healthy trees will always find a ready market. However, it could take time to sell and you can’t usually sell part of your holding.
What are the tax-advantages of forestry?
The income from grants and premia is (almost) free of tax.
While premium income is free of income tax it is now subject to PRSI and the Universal Social Charge.
The sale of timber when the final crop is sold, is free of income tax, subject to a threshold of €80k per annum. In general, you stagger the sale of the timber over a number of years to stay within the threshold.
The value of the trees is disregarded for Capital Gains Tax purposes. CGT is paid on the increase in value of the land.
90% of value of the crop is disregarded for Capital Acquisition Tax purposes ( Gift tax and Inheritance tax). Some wealthy people buy forestry as a CAT avoidance measure.
The value of growing trees is disregarded for stamp duty purposes on a conveyance or transfer of forestry land by sale or lease, stamp duty is charged only on the value of the bare land.
Timberland has a good guide to the taxation of forestry.
What are the risks facing forestry investors?
The forestry premia rates could change
This is perhaps the greatest worry and one of the reasons to buy a wood that has already collected all the available premia. If Government cut backs continue, which are they likely to reduce first, the old age pension or forestry premia?
Tax treatment could change
Taxation has already crept in by the side door but as it is very much in the national interest that we increase our forest cover, it is unlikely to rise much more. Apart from the High Earners income restriction, forestry income has already been subject to the introduction of the Pay Related Social Insurance charge and the 2009 Income Levy. With the replacement of the Levy by the Universal Social Charge (USC) in 2011, a typical forest owner will today pay PRSI at 4% and USC at 7% on any forest income.
Other risks
Forestry returns are long term and as with any commodity, it is difficult to make long term forecasts
Your forest could be damaged by disease
Your forest could be damaged by fire, but you can insure against this relatively cheaply
Links and additional information
Full details of grants etc can be found at
www.teagasc.ie/forestry/grants/ and also check out the Irish Timber Growers Association website at www.itga.ie and for an easy to read overview of tax and forestry check out http://www.timber-land.com/Tax.html
There are many benefits to owning woodland, not least the relative security of the investment, the (almost) tax free returns and of course the amenity value. Putting money in a managed forestry fund would appear to be a very expensive way of getting involved as opposed to buying some land either bare or planted. If one purchases land for oneself and plants it, the associated costs should be substantially less than a share in a fund and there is no commission or ongoing fees. It is frequently argued that the attraction of investing in a fund is that the amounts involved can be relatively small and therefore it is open to the smaller investor. However, many people nowadays invest as a family or in groups and once the land is purchased, the subsequent costs are virtually nil as they are all met by grants.
How much do I need to invest directly in forestry?
A sum of say €50K should be adequate to purchase 15/20 acres of bare land depending on location and quality. Land that is marginal for conventional agriculture can be ideal for forestry use. The current afforestation grants pay for the entire cost of planting, fencing and maintenance.
Alternatively, planted land at 20 years of age can be purchased for app €5/6K per acre depending of course on the quality of the crop. One must remember that at least two thirds of the cost of bare land is in anticipation of future premium income and the fact that the afforestation grants cover all the costs of establishment.
But I don’t know anything about forestry?
You don’t need to.
A qualified forester
- Will source the land for you
- Organize the planting
- Apply for the grants and deal with all paperwork
- Manage it on an ongoing basis – thinning, etc
There are many competent and trustworthy forestry companies available to both give advice and manage woodland. Timberland Forestry and The Woodland Group, both based in Galway, are long established and reputable firms as are Purser, Tarleton, Russell based in Dublin to name but three. Although they are based in Galway and Dublin, they operate throughout Ireland.
One can buy either bare farm land and then plant it or purchase a semi mature plantation that has already availed of the annual premiums. The variation in grant and premium levels means that it is far more attractive for a farmer to purchase unplanted land and enjoy the higher rate of premium. Due to the premium differential, a non-farmer might be better advised buying planted woodland at say 20 years of age and avail of the income from thinnings over the next 10/15 years and then enjoy a tax free windfall of app €8/10k per acre once the crop is fully mature and clearfelled. Semi mature woodland such as this is currently being sought after by pension funds and other non-farming investors. Suitable plots can be difficult to source but are still available, mostly from farmers who have finished drawing the premiums and wish to cash their investment.
What is the economic outlook for forestry and wood?
The future prospects for timber sales have never been better with a huge and increasing demand for wood fuel along with the demand for construction and other uses. Most of our construction timber is currently exported to Britain and France but this may change when the building industry in Ireland recovers.
How volatile is the price of planted forestry?
Forestry land has varied very little in price in real terms over the past two decades and while other property assets such as housing suffered huge falls, forestry remained stable.
How liquid is forestry investment?
Like most commodities, good forests with good access and healthy trees will always find a ready market. However, it could take time to sell and you can’t usually sell part of your holding.
What are the tax-advantages of forestry?
The income from grants and premia is (almost) free of tax.
While premium income is free of income tax it is now subject to PRSI and the Universal Social Charge.
The sale of timber when the final crop is sold, is free of income tax, subject to a threshold of €80k per annum. In general, you stagger the sale of the timber over a number of years to stay within the threshold.
The value of the trees is disregarded for Capital Gains Tax purposes. CGT is paid on the increase in value of the land.
90% of value of the crop is disregarded for Capital Acquisition Tax purposes ( Gift tax and Inheritance tax). Some wealthy people buy forestry as a CAT avoidance measure.
The value of growing trees is disregarded for stamp duty purposes on a conveyance or transfer of forestry land by sale or lease, stamp duty is charged only on the value of the bare land.
Timberland has a good guide to the taxation of forestry.
What are the risks facing forestry investors?
The forestry premia rates could change
This is perhaps the greatest worry and one of the reasons to buy a wood that has already collected all the available premia. If Government cut backs continue, which are they likely to reduce first, the old age pension or forestry premia?
Tax treatment could change
Taxation has already crept in by the side door but as it is very much in the national interest that we increase our forest cover, it is unlikely to rise much more. Apart from the High Earners income restriction, forestry income has already been subject to the introduction of the Pay Related Social Insurance charge and the 2009 Income Levy. With the replacement of the Levy by the Universal Social Charge (USC) in 2011, a typical forest owner will today pay PRSI at 4% and USC at 7% on any forest income.
Other risks
Forestry returns are long term and as with any commodity, it is difficult to make long term forecasts
Your forest could be damaged by disease
Your forest could be damaged by fire, but you can insure against this relatively cheaply
Links and additional information
Full details of grants etc can be found at
www.teagasc.ie/forestry/grants/ and also check out the Irish Timber Growers Association website at www.itga.ie and for an easy to read overview of tax and forestry check out http://www.timber-land.com/Tax.html
