Naujienos

April 17, 2005

Wood is good as prices start to climb back. Forestry investment is in fashion again after spending a decade in the shade, writes David Budworth from TIMESonline

INVESTING in forestry is back in vogue. Firms are reporting a surge in interest as timber prices show renewed vigour after plunging in the 1990s.

Investors are also flocking to forestry for the tax breaks, especially as it is one of the few remaining legitimate ways to escape inheritance tax (IHT).

Tim Kirk, woodland investment adviser at Tilhill, one of Britain’s biggest woodland sales and managing companies, said: “Timber prices fell from about £22 a tonne in 1996 to about £11 in 2004. But the market is on the up again and all the signs are that this will continue. Recently timber has fetched £13 a tonne and there is potential for prices to rise further.”

With luck, the value of forestry land will rise over time as well. Kirk estimates overall returns on forestry investments are 4% to 6% a year, based on long-term performance.

For many years, Britain’s tree growers have been unable to compete with overseas producers. Timber is the fourth-largest import into Britain, and the UK price is controlled by global markets.

The cost of higher-quality imported timber from the Baltic states of Latvia, Lithuania and Estonia has been a key influence on prices in Britain. The other main competitors are Ireland, Finland and Sweden.

A big determinant of British competitiveness is the exchange rate. Over much of the past decade, the price of European timber has been falling in sterling terms, forcing UK prices lower. But recently this has worked in Britain’s favour. The euro’s strengthening against sterling since summer 2003 has made timber from Europe more expensive, enabling UK prices to climb.

An increase in red tape after the Baltic states joined the European Union on May 1 last year plus restrictive timber conservation measures have also helped to push up prices from that region.

Growing demand from Asia — particularly China, which is now the largest net importer of timber products — is helping to swallow up a lot of the wood being produced in the Far East. This is easing pressure on UK tree-growers to keep prices low.

Demand for British timber has also been growing after a period in which an increase in recycling and lack of investment took its toll. The development of wood-burning power stations in the UK has been particularly welcome for the timber industry; 21 projects are in the planning stage and three are up and running.

Colin Lees-Millais of Forestry Investment Management (FIM), a woodland investment firm, said: “Such initiatives will be imperative if the government is to have any chance of reaching its stated target of generating 10% of electricity from renewable resources by 2010.”

Woodland also enjoys tax breaks. Normally, your heirs would pay IHT on the value of your estate above the annual exemption, currently £275,000. But if you manage woodland commercially, the land and trees become exempt from IHT after two years.

Income derived from any type of woodland is free from income and corporation tax. And any increase in the value of the timber is exempt from capital-gains tax (CGT). This doesn’t apply to the land, however.

Woodlands also qualify for CGT roll-over relief. You can avoid CGT that has arisen following the sale of a business by reinvesting the proceeds in forestry. If you hold the woodland until death the CGT bill is forgotten.

There are also government grants for growing trees, maintaining woodland and environmental initiatives. These vary depending on whether you own land in England, Scotland or Wales. Contact the Forestry Commission to find out more.

If you want to invest in woodland, you can buy a wood through an agent or investment manager, such as Tilhill, John Clegg, Fountains or FIM. Woods themselves start at about £30,000.

Tilhill is selling a 7.3-hectare woodland near Brechfa in South Wales for £28,000. However, larger plots can top £1m. Spruce are the trees that are most in demand for commercial use.

There are complications, however. For example, you need to get a licence from the Forestry Commission before you can start felling trees.

Remember forestry is a long-term investment. It takes at least 40 years before spruce can be chopped down for timber, and other species grow even more slowly. Buying an established plot will give you a quicker return on your investment.

Forestry also needs to be carefully managed, even if you are not growing timber commercially. If you are not prepared to do it yourself you will have to employ a firm such as Tilhill or FIM to oversee it. Agents usually charge between 1% and 3% of the value of the forest.

Those with as little as £10,000 can invest in a forestry trust, which pools money from many investors to buy woodland. These have the same tax breaks as a direct investment. FIM frequently markets such trusts. None is available at present, although the firm said a new issue would be out next month.

An increasing number of people are also buying woodland for enjoyment rather than investment. Jason Butler at Bloomsbury Financial Planning, a wealth-management firm, said: “Direct investment in woodland is really only an option for the wealthy because of the costs involved. Buying it as something you can use and enjoy rather than an investment is much more fun.”