When a developer of a wind farm fells trees in order to install its turbines, it is under a legal obligation (part of planning consent) to replant the trees elsewhere.
Our client (land owner) has been approached by a developer. The developer will enter into a 10 year lease with the client. The developer will pay £x per hectare of land. The developer needs to plant trees so it undertakes to do so on the land. After 10 years the lease will lapse and the trees will essentially revert to the client. The developer has no interest in this, it is a pain in the neck for them but it is a stipulation of the planning consent.
We know that income from commercial forest operations is exempt; however the rent from the land would appear to be taxable in the normal manner.
I am concerned that there is an angle for HMRC to say that the developer is making improvements to the asset (land) under the lease and that we may have a deemed premium. We estimate that the value of 10 year old trees is £3k per hectare. On that basis of 100 hectares the client would appear to be getting £300k value from this?