Farm Finance: What are the tax implications of felling damaged forests?

However, there is some good news on that front with clarity having been issued from the Department of Agriculture that existing in-date clear-fell licences (including combined thinning and clear-fell licences) may be used to fell and remove trees, where the forest plots covered by these licences have windblow damage caused by Storms Darragh and/or Éowyn. 

The existing conditions of the licence shall apply to any cutting, felling and removal of timber, including any timing restrictions in the licence conditions that might apply.

Where a forest owner has an existing thinning-only licence, owners can now complete and submit a notification form to the Department of Agriculture to get their licence extended to deal with recent storm damage.

Forest owners who do not have any current clear-fell or thinning licence can get an application fast-tracked by notifying the Department of Agriculture when making their application.

The storm damage is, according to Teagasc, equivalent to more than what would be regularly harvested over the course of two years. The fear amongst forest owners affected by the storms is that the trees damaged by the storm will deteriorate in quality if not harvested within a reasonably short amount of time.

From a tax perspective, forest owners will be able to receive whatever proceeds from the thinning, partial clearing or clear-felling of their forests free from income tax.

Harvesting

Forest owners are, however, in a precarious position as there is limited harvesting capacity, meaning timber processors can be picky about what sites they will actually take on given the dynamics of over-supply.

Afforested areas which might struggle to get tidied up include areas experiencing a relatively smaller quantum of damage, smaller overall plot size, awkward sites either in terms of terrain or access and sites where trees are not near maturity and are of less value to the timber-processing industry. 

Delayed clearing of plots results in dead time as the land cannot be re-planted until the damaged trees are removed.

Forest owners are also left in limbo as to whether forestry premiums which can be payable for the first 20 years of planting will continue to be paid for plots where storm damage has occurred. 

On the insurance front, forest owners are concerned that some areas badly affected will no longer be covered even though some forests within these areas escaped entirely, and separately many are worried that the cost of insurance is likely to rise.

Forestry programme

Michael Healy-Rae has previously voiced his ambitions to get Ireland’s forestry programme back on track by ensuring the Department of Agriculture and stakeholders work better with farmers. 

Having been thrown into the deep end with Storm Éowyn, it remains to be seen whether existing forest owners will be catered for adequately by the Department of Agriculture with Michael Healy-Rea in the driving seat. 

Knowing that the Department of Agriculture won’t be found wanting in the event of once-in-a-generation events is a precursor to instil confidence for any other landowners who may be considering forestry as an option.

From a tax perspective, forestry continues to be hugely attractive with the capacity to earn premiums and timber sales income tax-free with special tax rules also catering for exemptions and reliefs from capital gains tax, stamp duty and gift and inheritance tax in certain cases. 

Forest owners will be pleased to know that insurance proceeds relating to the damage of forests can be exempted from income tax.

The aforementioned capital gain tax exemption available to forest owners who are individual (non-corporates), only applies to standing timber. 

It also remains to be seen if any compensation package will come from the Department of Agriculture, the conditions relating to same and whether such a payment would be considered income from forestry and therefore exempt form income tax or a capital transaction, which under existing legislation wouldn’t be considered exempt from capital gains tax.