Forestry: one of the best performing asset classes

As land sales hit a record high across the UK, interest in forestry investment across the UK and internationally is climbing, according to the latest IPD UK Forestry Index.

Over the last decade, those who invested in forestry have reaped major returns. Indeed, forestry has been one of the best performing asset classes, providing returns of 19 per cent a year. This is in comparison to the return delivered by shares – up 7 per cent – and commercial property – up 6 per cent, the IPD UK Forestry Index showed.

Partner at forestry broker John Clegg & Co, Fenning Welstead, told the Daily Telegraph that the popularity in timber investment and the high returns delivered by the asset class have been driven by the rise in land prices across the UK.

“The fundamentals of forestry as an alternative asset are highly attractive with a renewable crop that increases in size every year even if you do nothing,” he said.

Sales of forest land across the country hit a record high over the course of this year, with £151 million worth of sales made during 2015 to September. This total was 50 per cent higher than the previous record high that was recorded in 2013, proving that the sector is currently red hot. Constant demand from both private and commercial, institutional investors has driven this rise, it was confirmed by industry experts.

Another benefit of investing in forestry, according to KPMG tax partner, Jo Bateson, is the tax benefits that can come as a result of owning the asset. Any profits made on commercial woodland is tax free, and no capital gains tax is payable on any increase made on the value of the forest.

Ms Bateson also said that business property relief can be claimed on the forest if it is a commercial timber business and is owned for over two years. This claim could lower inheritance tax to zero, however investors are warned to ensure that they are not snapping up an asset class solely in light of tax breaks, but rather should be doing so based on expert financial advice.

Investors can get into the forestry arena in a variety of ways, including using specialist websites to snap up pieces of land priced at anything from £40,000 to over £130,000, the Telegraph reported. Forestry funds are also another means to entering into the sector, with the minimum investment in FIM funds being £40,000.

Investors must be aware of the ongoing costs related to owning forestry as an asset class. For example, forestry investment made up of small woods need public liability insurance as well as insurance cover for storm and fire damage. These costs are in addition to maintenance costs, covering issues such as thinning of tree cover and drainage work. Potential investors were also warned that smaller investments will never reap the returns that could be expected from large scale commercial operations.

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