In the last year, investment in UK forestry has provided returns of 20 per cent, compared to 14.5 per cent in equities; 9.1 per cent in gilts; and 15.1 per cent in commercial property. Over five years, returns in forestry reached 17.7 per cent, with equities only providing 5.9 per cent; gilts and commercial property were even lower.
Tom Aldridge, regional director at Central Insurance, the UK’s largest insurer of investment forestry, said the security of timber as an asset was an attractive prospect for investors wary of unpredictable fluctuations in many other markets.
He said: “Not only is timber an asset which literally grows year on year, but it can also be insured against unforeseen events like fire and storms. That makes it less risky than other assets which don’t allow for a similar safety net, and that’s been a very attractive factor for investors over the last few years.”
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Central Insurance has seen its forestry cover extend across the UK as global demand for British timber has increased.
As well as security of the asset, forestry allows investors significant tax benefits since there is no income tax levied on sales of timber. Moreover, after two years of ownership, forestry investors are granted 100 per cent relief on inheritance tax.
This is a major benefit for many timber investors, according to Tom, who typically own forestry for ten years before selling it on. This makes it an ideal option for anyone with suitable cash to invest in a low-risk, high-return asset which can be shielded from tax liabilities as part of a bequest.
Tom said: "The benefits of forestry investment almost make it a perfect option; it provides good returns at low risk, and some element of that risk can even be insured. Inheritance tax is also clearly a major consideration for many investors who wish to pass on their wealth to someone else after they’ve gone without having to sacrifice a large chunk of it to the tax man."
According to Ralland Browne, director of investment and services at Scottish Woodlands, which currently has more than 200,000 hectares of forestry under management, investors should expect to pay between £2000 and £8000 for a hectare, depending on age, location, maturity, and other factors.
He said: "I honestly believe forestry is coming into its zenith right now. It’s much higher up the Scottish Government’s agenda; they’ve identified it as a major economic contributor and plan to increase forestry cover in Scotland significantly in the next 40 years.
"The sawmill industry is also investing heavily in updating infrastructure and modern facilities in response to greater demand from countries like China.
"The UK might not be a major player on the global scale of forestry, but we have good sustainability policies in place, growing demand and the timber produced here is of a very high-quality, so the investment opportunities are huge."
(GK)
