Woodland and inheritance tax rules

Until recently, the inheritance tax rules specific to woodland have gone under the radar. However, it is important to understand these rules and the tax relief they bring, especially given the changes to agricultural and business relief in last year’s Budget and the diversification opportunities that woodland may now offer.

Below is a brief guide to how UK woodland is treated in the UK inheritance tax regime, and what that can mean for your estate and tax planning.

Woodland can qualify for APR if it is occupied with, and ancillary to, agricultural land or pasture. The inheritance tax relief is currently available at either 100% or 50%. The land must have been owned for two years if occupied by the owner or seven years if occupied by someone else.

From 6 April 2026, 100% APR is capped to the first £1million of agricultural value with only 50% relief applying thereafter.

Qualifying woodlands can include woodland shelter belts, game coverts, fox coverts, short rotation coppice and Christmas tree growing. It is important to note however that amenity woodland (often used for a variety of recreational, cultural or environmental purposes given its aesthetic, cultural or historical relevance) will not fall to be APR qualifying. 

A woodland owned for over two years can qualify for BPR either as a business or as part of a larger farming/estate enterprise. Similar to APR, the relief is currently set at 100%, but from 6 April 2026, BPR at 100% will be capped to the first £1million of value with only 50% relief applying thereafter.

To qualify as a business in its own right, the woodland must be run as a business on a commercial basis with a view to a profit. Evidence is crucial in order to support these claims, and could include the following:

• Separately prepared woodland accounts
• Separate bank account for the woodland activity
• Claiming of forestry grants as these generally require a level of woodland management
• An up-to-date business and woodland management plan, to include viable length of return for timber sales, planting schedule, details of coppice rotations and the sale of thinnings
• Cashflow forecasts for the next few years showing the growth of the business, cash or funding requirements and profit generation
• Employment contracts if relevant, including employment of forester/woodland manager
• Contractor invoices recording the work done
• Holding of a felling licence
• Recording of marketing activity (online/local press)
• The storing and seasoning of wood for next year’s sales
• For smaller areas, are the woodlands being managed as a syndicate?

For leisure activity use the woodland would only qualify for BPR if it were utilised as part of a commercial enterprise, again with a view to a profit rather than being used for conducting a hobby. For example, woodlands used as game coverts, paintballing or glamping (carried out by the woodland owner) should qualify for BPR as part of a business.

Helpfully, HMRC has indicated in its guidance that woodland planted for the purpose of generating carbon credits under the Woodland Carbon Code or the Peatland Code can also be eligible for BPR, provided the other conditions for the relief are met. 

Woodland relief is relevant when perhaps APR and BPR requirements have not been met. It is only available on death, not on lifetime transfers.

This relief is a deferral of inheritance tax on the value of any trees or underwood growing on the land at death of the owner. It recognises that growing trees may take several generations to mature and would otherwise be taxed on each successive death.

No inheritance tax is payable on the value of the timber until it is sold or otherwise disposed of.  Then, if the disposal is a sale for market value, tax is chargeable on the net proceeds of sale. If not sold for market value, tax is chargeable on the net value at the time of disposal.

When considering whether or not to make the claim it is important to estimate the increase in value of the timber between the date of death and the time of actual sale. 

If the woodland is in an area deemed by HMRC and Natural England to be of ‘outstanding scenic or historic or scientific interest’ it may qualify for inheritance tax relief as a heritage asset. Specific conditions will need to be met.

Our experts at S&W are experienced in determining the correct inheritance tax treatment of many assets, including woodland, and can help you to understand this and whether any changes in how the woodland is used could be made to secure reliefs.

If you would like advice on any of the points in this article, please get in touch with your usual contact or one of the contacts listed.

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