COMMERCIAL FORESTRY has been the top performing land asset in the UK in the past 15 years, with the best woodlands generating returns in excess of 10% a year.

But according to Philippa Cliff, Galbraith's head of forestry, there are actually very few investors active in the market.

"Woodland seems to be considered as an investment option only by a few people in the know," said Ms Cliff. "The reasons for so few investors are not clear, but it may be largely down to nervousness about an asset class few people have experience of. Stocks, shares and bonds are traded by millions, but woodland seems to remain an option only for an elite few. A lack of understanding probably explains the gap, but with professional advice, anyone who is willing to take a long-term view can become a woodland owner.

"Timber is currently the fourth biggest UK import, but a weaker pound has pushed up import costs, fuelling an immediate rise in timber prices and increased demand for home-grown timber," she said.

"Planting land is relatively inexpensive to acquire – in Scotland it is currently less than £5000/hectare despite experiencing a rapid rise in value in recent years. With payment rates of £3840/hectare for diverse conifers, £5520/hectare for commercial broadleaves, and £3200/hectare for native broadleaves, plus enhanced rates in target areas, growing trees can offer better prospects than sheep farming," she suggested.

"With sheep farming facing increasingly tight margins, and timber offering a better long-term prospect, large tracts of the Scottish hills are starting a conversion to forestry driven by both private and public sector investors.

"Scotland is the most wooded country in the UK, but only 17% of its total land area is growing trees. Compare that with worldwide, where more than a quarter of land is forest, and the remainder of Europe, where more than a third of all land is covered in trees. It is no surprise therefore that the Scottish Government has stated its vision to increase the planted area in Scotland to 21% by 2032."

Ms Cliff said that 'solid returns' for investors were likely to continue in the medium to long-term because of three factors – firstly the growing biomass sector which uses wood as a biofuel; secondly, the global demand for timber, which is expected to increase by an additional 33% by 2050; and thirdly the Woodland Carbon Code.

The WCC is an initiative run through the Forestry Commission that quantifies and validates the amount of carbon captured by new woodland planting. This process enables the subsequent trading of the carbon asset for offset of carbon emissions by industry. The Code can therefore be attractive to any woodland investor who can benefit from the additional income from trading woodland carbon units, but may also specifically appeal to an investor who has business interests elsewhere that require an element of carbon offset.

Ms Cliff noted that, in addition to these very attractive returns, the tax system is currently geared towards helping those who invest in woodland.

"No Income Tax or Capital Gains Tax is payable on the sale of timber and commercial forests are entitled to 100% Business Property Relief from Inheritance Tax after two years of ownership," she explained.

“We would advise prospective investors to take advice but to not be daunted by the prospect of investing in something that is unknown to them. This is a stable asset class and now is a good time to make the most of the planting grants and tax incentives available.”