Forestry and taxation
Teagasc strongly recommends consultation with a professional tax advisor before making any significant decisions regarding tax implications.
Taxes relevant to forestry include (information updated January 2023):
- Capital Acquisitions Tax (CAT) i.e. Inheritance and Gift
- Income from Woodlands
- Universal Social Charge (USC)
- Capital Gains Tax (CGT)
- Stamp Duty
- Value-Added Tax (VAT)
- Young Farmer Relief (YFR)
Capital Acquisitions Tax (CAT) i.e. Inheritance and Gift
Commercial woodlands in the State i.e. woodland managed on a commercial basis and with a view to the realisation of profits, are subject to CAT on gifts to, or inheritance by, individuals regardless of the residence or domicile of the disponer and beneficiary. In addition to specific exempt thresholds, relief is available to commercial woodlands as agricultural property.
The relief, as a reduction in market value is as follows:
- A flat rate reduction of 90% applies to both inter-vivo gifts and inheritance of commercial woodlands.
- All gifts and inheritance between husband and wife are exempt from CAT.
- The woodlands can be located in any member state of the European Union and still attract Agricultural Relief.
Agricultural Relief for farmland is restricted and is subject to both the '80% agricultural property' test and the 'active farmer' requirements:
- The 80% Agricultural Property Test or Asset Test requires 80% of what is being taken over must comprise either land, buildings, stock or machinery.
- The Active Farmer Test requires that the land is actively farmed and the person(s) involved must either have farmed the agricultural property for at least 50% of their time or have a relevant agricultural qualification. They must also farm the agricultural property on a commercial basis for at least six years from the date of gift or inheritance or lease the property to someone who farms the agricultural property on a commercial basis for at least six years from that date.
Trees qualify for agricultural relief without the Asset Test but must satisfy the Active Farmer Test. The latter means that the forest must be actively managed on a commercial basis. This requirement may vary on a case-by-case basis.
The recipient of the woodlands must retain them for six years but can sell and purchase replacement woodlands in the 6-year period without losing the 90% Relief. Sale of timber in the 6-year period does not affect the Relief.
Business Relief may also be applicable in certain cases. Like Agricultural Relief, it allows a 90% discount from market value to arrive at the taxable value of a Gift or Inheritance. There are some differences in the conditions to qualify for Business Relief compared to those for Agricultural Relief and professional advice should be sought.
The tax-free parent-to-child exemption is €335,000 since 2019.
Income from Woodlands
Income from the occupation of woodlands in the State, managed on a commercial basis and with a view to the realisation of profits, is exempt from Income Taxes for individuals and companies regardless of their residence or domicile. Therefore it is the individual/company who occupies the woodland that can be eligible for this exemption.
Ownership of a forest is not sufficient; occupation and management with a view to profit realisation must also be shown.
Woodland grants are not treated as income but in the preparation of annual accounts by an owner the cost of planting and maintenance should be shown as net of grants received.
Income from commercial woodland, including the forest premium, is reckoned for the purposes of PRSI @ 4% flat rate.
Universal Social Charge (USC)
Income from commercial woodlands, including the forest premium, is reckoned for the purposes of USC.
The following rates of USC apply from 1 January 2023:
- 0.5% on income up to €12,012
- 2% on income from €12,013 to €22,920
- 4.5% on income from €22,921 to €70,044
- 8.0% on income over €70,044
- 11% on self-employment income over €100,000
Capital Gains Tax (CGT)
Commercial woodlands occupied by individuals are exempt from CGT on the growing timber. The underlying land is not exempt but chargeable gains are restricted to the surplus over inflation adjusted cost. An apportionment of value between the land and the trees may therefore be required. CGT is not applicable to a disposal on death. The exemption does not apply to companies which occupy woodlands.
The current rate of CGT is 33%.
The following rates of Stamp Duty apply currently:
- Non-residential property: 7.5%
- Residential up to €1m: 1%
- Over €1m: 2%
Transfers of property between spouses and within group-related companies are exempt.
Growing timber in commercial woodlands "growing on a substantial part of the land" (75%) is deemed exempt from Stamp Duty. The underlying land is liable to Stamp Duty.
Young Trained Farmer Relief / Consanguinity Relief does not apply to the transfer of forest land / woodland.
Value-Added Tax (VAT)
Commercial forestry operations are regarded as agricultural production and exempt from VAT but the exemption may be waived. It may be efficient to waive exemption and thus recover VAT on all the inputs of goods and services supplied to the woodland occupier. Repayments of VAT are made promptly even though the woodland may not produce any taxable supplies for many years. Once registered for VAT, any supply by the woodland, including disposal, will attract a charge to VAT.
A farmer, who qualifies as a 'flat-rate farmer', has the option of registering for VAT. This farmer can reclaim the VAT on their related farming purchases but is also required to charge VAT at the appropriate VAT rate on all sales.
The following are the VAT rates for forestry:
- Forestry services (planting, felling etc.) 13.5%
- Timber sales 23%
- Firewood 13.5%
- Forest and Land 23%
An unregistered woodland owner can add a flat-rate VAT of 5% from 1 January 2023 (previously 5.5%) to an invoice to compensate for VAT inputs that were incurred but cannot be recovered. The invoice must make it clear that the owner is not registered and that it is merely the flat-rate refund.
In some cases, a farmer may be able to claim VAT on expenditure such as ground preparation, fencing and roadways, etc. (i.e. fixed capital expenditure) at establishment or reforestation stages. VAT can be reclaimed using a VAT 58 form. All claims and enquiries relating to repayments to unregistered farmers should be made to:
- Office of the Revenue Commissioners, VAT Unregistered Repayments, Sarsfield House, Francis Street, Limerick. Phone 1890-252449 or email email@example.com
Young Farmer Relief (YFR)
YFR provides an exemption from the 7.5% Stamp Duty on the purchase of agricultural land, i.e. not occupied as woodlands or land suitable for woodlands.
It is worth noting that if the land is switched to woodlands in the first five years after purchase and initial farming, then the land will be liable to the original 7.5% Stamp Duty.
- Taxation of Forestry - ifac (PDF, June 2019)
- Taxation of Forestry - fdc (PDF, June 2019)
- Teagasc Forestry YouTube Channel (Filmed in 2019)
- Contact your tax adviser
- Contact your local Teagasc Forestry Adviser or email firstname.lastname@example.org
- Regulations change over time. You are required to seek independent, expert and up-to-date advice