Yes, there\’s even more!

Ritchie tells us that:

But the effect of putting so much extra woodland on the open market in the next few years is expected to lead to a rush of corporations and wealthy people taking advantage of the tax sweeteners that already exist for forestry owners, says accountant Richard Murphy, director of Tax Research LLP and an adviser to the TUC and Tax Justice Network.

\”This is about creating a massive opportunity to ensure that less tax is paid, which undermines the whole cause of selling off the forests. If I had a million pounds and I thought I have some risk of dying in the next few years, as part of my inheritance planning I could put it into forests. Then when I keel over, I can pass that on to the next generation without inheritance tax, so the government would lose out £400,000 in inheritance tax. I think an awful lot of people are going to be tempted to buy forests\”, said Murphy.

As I commented at The Guardian:

Oh Lord, Richard Murphy on tax again.

So, think through what he\’s just said.

If someone buys a forest for £1 million then we don\’t get £400,000 when they kick the bucket.

Hmm, OK, maybe that\’s not a good idea.

But hang on a minute, if they buy a forest for £1 million then we get £1 million now!

So we get £600,000 more than we would have done and furthermore, we get the money now, not whenever they kick the bucket.

We the taxpayers are making out like gangbusters by selling off the forests therefore. We get more money sooner.

Sigh.

8 thoughts on “Yes, there\’s even more!”

  1. ????

    Tim, unusually for you, this is wrong on so many levels that I don’t know where to begin.

    Presumably there is some sort of asset value or income from these forests. Otherwise they wouldn’t be valued at £1M for our punter.

    (He presumably wants to pass on £1M of actual value to his little darlings)

    So:
    Option 1: don’t sell forest
    HMRC gets income from forest
    HMRC gets £400k when our punter snuffs it.
    State has £1M on balance sheet as Tangibles

    Option 2: sell forest
    HMRC loses income from forest
    HMRC doesn’t get £400k
    State has £1M on balance sheet as Cash.

    Option 2 is not so good for HMRC at all.

    Tim adds: “Presumably there is some sort of asset value or income from these forests. ”

    Ah, but, we taxpayers lose on the Forestry Commission. We subsidise it…..

  2. In which case, why would the punter take it on?

    He pays £1M for something with negative value (on any sensible DCF valuation) in order to save £400k.

    That doesn’t make sense for the punter.

    Tim adds: Moving an asset from government management to private management has been known, just occasionally you understand, to increase the return from said asset and thus its capital value.

    No?

  3. “Presumably there is some sort of asset value or income from these forests. ”

    Most of the asset value may actually come from its use in inheritance tax avoidance.

    Remember that this is not a one-off exemption, but applies to each purchaser in turn (provided they hold it for at least the minimum period to qualify).

  4. If we assume a free market with sufficient competing purchasers, then the price will be driven up above £1m to reflect the future value of IHT savings. £400k every thirty years at, say, 8% cost of capital should mean that people value the land at £1m plus the discounted tax saving.

    The Graun article comments are so ill-informed that I scarcely know where to begin. The freehold of most FC land is not owned by the FC but by the original landowners and leased longterm to the FC. The conditions of those leases by and large only permit forestry and occasionaly personal leisure use, so the only people who can change the use of the land are the freeholders; if the FC assigns a lease to a third party and the new leaseholder wants to, for example, build a Centerparc on it then the freeholder will demand payment to reflect the increased land value.

  5. Back of a fag packet, I’m coming up with values of £100-200k depending on the input assumptions, but the point is that this should be reflected in the purchase price. If the prices don’t rise to reflect this then one of two things is happening – the purchasers are colluding to pay less than the true value, and this is possible but unlikely given than all of the land will be sold off on the open market, probably by the FC’s preferred agent John Clegg & Co. If that isn’t the case then there simply isn’t that much demand for IHT shelter and so the tax loss will be quantifiable but small.

    Either way Ritchie is yet again talking bollocks and the Guardianistas are getting het up about it.

  6. Good news the sell off is…off
    News just breaking on the BBC the collision have made a u turn on the woodland privatisation

    I guess they have calculated that with their cuts coming soon, inflation at 5% and no prospect of real wages rising anytime soon. They don’t have the stomach for a fight with middle England.

    Further more it is proof if proof is need that all privatisation is determined by politics.

    And in this case ideology of the free Market meet the politics of big society.

    It is very hard to banging on about the big society when you sell nationally treasured assets to the very rich.

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