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How trees can add value to upland farms

Smaller forestry projects can be profitable – and they could be a lifeline for struggling sheep farmers, says Jennifer Jeffrey.

With the threat of Less Favoured Area Support Scheme (LFASS) payments grinding to a halt, confusion over future farm subsidies and the ready market of investors looking for bare hill land suitable for forestry planting, it may seem that upland livestock farmers have no option but to sell up and cash in while they can.

However, consideration should be given to how livestock and forestry enterprises can be run in tandem on the same holding to add value to your land and business. The answer could be agro-forestry.

The benefits that agro-forestry can bring to sheep health and productivity are well known and proven:

  • Providing shelter and shade for animals.
  • Assisting with water management.
  • Increasing bio-security.
  • Increasing grass growth.

What may not be as well known is that smaller forestry plantations can be profitable too and bring a wider benefit to the whole farming business.

Tax benefits

Forestry brings a number of tax benefits – one of the reasons investors are keen to cash in. No income tax is payable on profit made from the sale of commercial timber and the gain in value of commercially managed standing timber is free from Capital Gains Tax so passing on property to the next generation may be less onerous.

Commercially managed woodland also qualifies for Business Property Relief, so no Inheritance Tax should be payable on commercial woodland assets, if they have been owned for at least two years.

Carbon Credits

Carbon Credits are saleable assets which are allocated through the Woodland Carbon Code, a government initiative to quantify and verify the amount of carbon that will be captured by new woodland planting.

Once your new planting project is established, it is validated into the scheme and a number of Pending Issuance Units (PIUs) are issued based on the estimated volume of carbon the scheme is expected to sequester during its lifetime. These PIU’s are then tradeable and buyers can use them to offset their carbon emissions once the plantation has been verified at various dates.

Income can therefore be generated throughout a forest’s lifetime and you may see a profit from your investment before trees reach maturity and felling begins.

A more saleable asset

Although you may think that you don’t have enough land to sacrifice to tree planting – it is important to consider shelter belts, hedgerows and those wet corners that you never seem to get dry. It’ll probably turn out that you have more available land than you think.

Well-managed farms and estates with diversified income streams which include forestry are more saleable and valuable assets. Consequently, tree planting will be of benefit even if you only plan to own the property short term.

Shelter belts: not just for amenity

Farmers should also think about existing shelter belts, which can now be worth more than just their amenity value. Previously, access problems and lack of economies of scale meant that shelter belts had little or no value for harvesting.

However, in today’s market, with rising timber prices, harvesting may be more worthwhile. There is growing demand for timber around the world and this demand is expected to continue. Smaller areas of woodland created now will provide an income for the next generation.

The Forestry Grant Scheme

If you decide tree planting is for you, financial assistance is available for both initial planting and maintenance payments. Initial planting grants normally cover the entire cost. Maintenance payments are paid for a period of five years and you will also continue to receive Basic Payment over the land if it had been used previously for agriculture.

You can apply for forestry grants all year round. However, it is not known how much longer the Scottish Government will continue to accept Forestry Grant Scheme applications, so now is the time to act. However there are still many opportunities to plant without the need for grants. The sooner you plant the sooner you will benefit.