Alternatives, like collectibles – think fine wines, vintage cars, art and handbags – may deliver rewards through value appreciation. But they can require hefty outlays just to hold them – in specialised storage and insurance costs, for instance.

Investment in trees has the potential to offer both income and capital returns. In addition, woodland attracts grants and financial incentives for carbon capture. And then there are the tax breaks.

To start with, there is no income tax on profits from commercial forestry in the UK. On the face of it, that sounds attractive, but woodland comes with costs too. You must factor in the time between planting and felling the trees, the expenses defrayed while they grow and the fact that if you make any losses, they cannot be set against other income.

To be free of income tax, the woodland must be occupied and managed commercially. That means there must be an intention to profit from the sale of raw timber, which effectively rules out smaller woodland investors.

Even then, it is only the tree-growing activity that is tax free; any profits from other activities on the land – like camping or growing Christmas trees – are taxable.

Similarly, there is no capital gains tax (CGT) on the sale of trees. However, if the whole woodland is sold, the amount received for the underlying land will be subject to CGT, so the price needs to be apportioned between trees and land, with only the former being tax free.

Business property relief

Perhaps the more compelling tax case for woodland investment is the fact that commercially operated woodland attracts Business Property Relief (BPR), which means it can help reduce your inheritance tax (IHT) liabilities.

The woodland must be run as a business with a view to making a profit. If this and other conditions are met, the relief may cover 100% of the value of the woodlands after just two years of ownership.

It is worth bearing in mind that HMRC may want to see evidence of the profit potential after your death, so keeping good records, with a business plan, evidence of annual inspections and management reports, will make the claim easier for your executors.

Agricultural property relief

Most woodlands are not agricultural property but can qualify for Agricultural Property Relief (APR) if they are ‘ancillary’ to farmland and serve a useful function. An example would be a strip of woodland acting as a wind shelter. APR is another relief from IHT. Unlike with BPR, the owner does not need to be actively involved in the farming; renting the land to a tenant farmer who uses the woodland as part of their farming business will secure eligibility – but only after seven years.

If neither BPR nor APR are available, then there is a specific claim for woodlands relief. This only defers the liability for IHT until the trees are sold, rather than providing a complete exemption. It only operates on the value of the trees and not the underlying land, and purchasers need a five-year ownership period to qualify as opposed to two years with BPR. Anyone who acquired the woodland by gift or inheritance has no minimum ownership period, however. 

Although woodland relief is less attractive than BPR and APR, it can allow the deferral of the IHT to a point, possibly a long time in the future, when your heirs are in funds from the sale. In the meantime, IHT on the underlying land can often be paid over 10 years by instalments, making it possible to retain the woodlands within the family.

In summary

Woodland investment is a long-term prospect – you can expect your investment to be locked in for a decade or more. And there is no guarantee that it will continue to grow in value as it has recently. No investment should be undertaken for the tax breaks alone, and the headline reliefs for income and gains are less beneficial than we might expect. But, as part of a long-term family wealth plan, woodland investment might provide education costs or pensions for future generations and the inheritance tax relief possibilities mean it can be part of a discussion on tax-advantaged investments.

Important information: Tax laws are subject to change and taxation will vary depending on individual circumstances

The post Can money grow on trees? appeared first on Weatherbys Private Bank.

A name synonymous with horse racing, Weatherbys initially launched the Racing Bank to serve the equestrian community. Due to its unparalleled success and reputation for exceptional client service, this laid the foundation for Weatherbys Private Bank. We have long had a presence in Scotland, but we believed there was a gap in the market north of the border for a private bank such as ourselves.
 
Having started from a relatively small base in 2015, our Scottish headquarters, based in Edinburgh’s Rutland Square, is today home to eight staff. But the single office belies our national coverage. Some quick postcode analysis highlights that we have clients from as far north as Thurso to Dumfries in the south.

Working as a team of trusted advisers

During our early days, our strong connections with several leading law, solicitor and accountancy firms introduced us to many of our first clients. These numbers grew quickly, much of it by word of mouth. Today, our clients include everyone from professionals, young entrepreneurs, small business owners to traditional land-owners – the latter of whom have been overlooked by some private banks in the past for not being “fashionable”.

Powering innovation and sustainability across Scotland

Indeed, there is more innovation in the rural community than many might expect. Diversification is increasingly important for a landowner’s bottom line. The latest figures from the Scottish Government show that farms that have diversified boosted their annual income by an average of £21,300 last year.* The most common diversified activity continues to be renting out farm buildings, while micro electricity generation, wind turbines and hosting mobile telephone masts have proved profitable for many farmers..
 
One of our clients, the Torrisdale Castle Estate, secured a loan from us to help fund a hydro-electric scheme backed by a 20-year government subsidy. The estate subsequently opened a gin distillery by utilising this hydro power with expectations to sell around 5,000 bottles of its Kintyre Gin a year. Today, it sells three times as many bottles with plans afoot to open a visitor centre and café.

* Scottish Government Statistics

Working with you, from generation to generation

“We offer a traditional banking model with the personal service people are looking for from their Private Bank. Clients like talking to someone they know and trust, who understands their unique financial arrangements. At our heart is a personal service focused on investment advice, lending and financial planning.” – Hayley Robinson, Private Banker. 

We look at all aspects of your financial life to get a complete picture of your finances. We consider your assets, your income and your outgoings, and assess your future spending requirements. Once we have understood your goals and looked at your current investments, we will apply our three key areas of expertise: cash flow and tax planning, structuring affairs efficiently, and investments.
 
As part of this, we focus on having a financial roadmap in place, in the form of a cash flow plan that will help you map out your financial requirements and demonstrate how various different scenarios might affect those needs. Not only will a clear cash flow plan help you to save and eventually spend their money in the most tax-efficient manner, but it also gives you a deeper understanding of what you are working towards.

Business as usual at Weatherbys Private Bank

Until the Covid-19 pandemic, travelling across the country to see clients was a key part of our bankers’ role. You get to understand so much more regarding a client’s situation when you meet them face to face and it helps build a personal relationship, so they become part of the Weatherbys’ family. It’s why we pride ourselves on being good listeners.
 
During the lockdowns and social restrictions, visits were replaced with video and phone calls, and a constant stream of emails. Many of our clients live alone, so keeping in touch, ensuring they were okay and checking whether there was anything they needed, was very important to us. And with the prospect of restrictions being lifted in the not-too-distant future, Duncan, Hayley and Graeme will be back on the road. A visit to the Isle of Skye, beckons.

The post Private banking in Scotland appeared first on Weatherbys Private Bank.

This is why at Weatherbys we look at all aspects of your financial life. We examine the full picture of your finances. We consider your assets, your income and your outgoings and assess your future spending requirements.

Once we have understood your goals and looked at any existing investments you may have, we will apply our three key areas of expertise:

• cash flow and tax planning
• structuring your affairs efficiently
• investments

“Not only will a plan help you to save and eventually spend your money in the most tax-efficient manner, it will also give you a deeper understanding of what you are working towards financially.” – Nathan Valbonesi, Senior Financial Planner.

What is a cash flow plan, and why do you need one?

As part of this, we focus on having a financial roadmap in place, in the form of a cash flow plan that will help you map out your financial requirements and will demonstrate how various different scenarios might affect those needs. Not only will a clear cash flow plan help you to save and eventually spend your money in the most tax-efficient manner, it will also give you a deeper understanding of what you are working towards.

The sort of questions we ask to help you include: where do you want to be in 20 years’ time? What will you need to fund during that time? Do you need to consider school or university fees for your children? Are you making the most of your pension and ISA allowances during your peak earnings period? This is particularly important to consider given the radical reduction in pension contribution allowances in recent years.

How Weatherbys can help

Even if you are comfortable that you have sufficient assets to fund your goals, a cash flow plan will help you to make the most of your wealth. For example, I recall one new client who came to us for advice having already retired. He and his wife had various savings pots between them: ISAs, a SIPP and a general investment portfolio, with many investment managers involved across the board.

So, we looked at developing a cash flow plan. We assessed their current and future income needs, including allowances for gifting money to minimise inheritance tax, and concluded that he and his wife had sufficient assets to meet their goals, even assuming a relatively modest rate of annual return on their investments.

Yet their pensions, which were being managed by another firm, were invested in higher-risk assets that they were being charged a premium for. We were able to offer an alternative – a lower charging, lower-risk portfolio that could still comfortably meet their cash flow needs until they reached 100 years old. Naturally, they were very happy to take our advice and for us to manage their pensions.

Finding value for our clients

A cash flow approach can also identify opportunities that you may not have been aware of. Did you know, for example, that a child can contribute up to £2,880 a year to a pension that then attracts basic rate tax relief? A grandparent contributing this on the child’s behalf could, in many cases, exempt the gift from their estate for IHT purposes. This could build up a very generous pension pot for the child by the time they reach age 21.

Once you have a plan in place, it must be reviewed regularly because circumstances change. For instance, you might inherit money or find that unexpected expenses arise. This is particularly important as you get older and move away from accumulating your wealth to ensuring that you have the cash flow to maintain your standard of living, and perhaps planning for your legacy.

Important information

Investments can go up and down in value and you may not get back the full amount originally invested.

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