5 minTaxation of woodland assets: taxing woodland (part 2 of 3)
Bernard Goffaux & Anne-Gaëlle Van Walleghem The acquisition of a woodland property can represent an attractive opportunity for certain investors. In this second section, our experts discuss the tax implications of owning woodland in Belgium or France.
The information contained within this article is aimed at Belgian residents.
Find out in our brief about the tax rules that apply to Belgian residents who own woodland:
- In Belgium with Bernard Goffaux, Head of Estate Planning and Tax
- In France with Anne-Gaëlle Van Walleghem, tax expert.
Is woodland subject to ownership tax?
B.G: Anyone who owns woodland is liable to pay property tax and cadastral income tax for as long as they hold that woodland. Property tax is calculated on the basis of cadastral income, indexed at a rate that varies according to the location of the property.
Contrary to what its title suggests, property tax is an actual ownership tax and cannot be deducted from the tax due on cadastral income.
A-G.VW: In France, ownership tax shall be payable on the cadastral income of the property, minus an initial flat-rate allowance of 20% and an additional basic exemption of 20%. Temporary exemptions – either partial or complete – are also possible when woodland properties have certain characteristics that the French government wishes to encourage. For example, “land seeded, planted or replanted with woodland” may be exempt for 10, 30 or 50 years, depending on the type of trees involved.
What about properties in Natura 2000 areas?
B.G : Plots located in Natura 2000 areas are sites intended to ensure the long-term survival of endangered areas and habitats in Europe. These plots are exempt from property tax and are not subject to income tax.
A-G.VW: In France, land located on such a site is fully exempt from ownership tax for five years (renewable).
Can owning woodland result in being subject to the IFI in France?
A-G.VW: By their very nature, plots of woodland and forests fall within the scope of the “Impôt sur la Fortune Immobilière”, (Real Estate Wealth Tax, €1.3 million in net assets). However, the following points must be taken into account to determine whether or not an IFI return must be filed and the tax paid.
Firstly, French tax law exempts woodland and forests as well as shares in forestry groups (excluding investment groups) from the tax base – up to ¾ of their value – if certain conditions are met. For those holding shares in forestry groups, the partial exemption is limited to the fraction of the net value of the shares that corresponds to woodland and forests.
Broadly speaking, the main requirements to benefit from this preferential regime are as follows:
- The production of an administrative certificate attesting that the woods and forests present one of the sustainable management guarantees set out in the Forestry Code (to be renewed every 10 years with an assessment of sustainable management implementation);
- And the commitment in writing from the owner (i.e. the individual owner or the forestry group) to apply this guarantee for 30 years, and where applicable, to also reforest the fallow land and moorland that they hold.
- Note that shares in forestry groups must have been held for more than two years if they were acquired for valuable consideration.
The trade-off regarding this preferential regime is that any debts relating to the woodland and forests will also only be taken into account up to a quarter of their value when determining net taxable assets in France.
Accordingly, and provided that the conditions of the preferential regime are met, only one quarter of the net value of the woodland and forests and shares in forestry groups held by a Belgian investor will need to be added to any other real estate assets in France to determine whether the threshold for this tax has been reached.
As they are not a French resident, they will not be able to benefit from the IFI’s capping mechanism.
Is the owner taxable on property income?
B.G: In addition to property tax, every owner of a woodland estate in Belgium must enter the cadastral income from the property in box 1107 of their annual personal income tax return. The indexed cadastral income will be aggregated with other income and taxed in accordance with the ordinary personal income tax scale (between 25% and 50% depending on the taxpayer's total taxable income).
Proceeds from the sale of standing timber in Belgium, on the other hand, are not taxable and do not have to be included in the owner's personal income tax return. Conversely, income from hunting leases is treated as miscellaneous income and taxed at a separate rate of 30%.
A-G.VW: In France, new plantations are also favoured from a tax point of view, since the profit to be declared will be equal to whichever is lower: the cadastral income before work or half the cadastral income after work.
Logging is taxable but benefits from the preferential lump-sum forestry scheme, which involves taxing a sum equal to the cadastral income each year, along with other income taxable in France, regardless of the size of the properties harvested.
Finally, income from hunting leases will generally have to be declared as estate income and the net amount will be subject to the progressive tax scale (with a minimum tax rate of 20%) and the solidarity levy of 7.5% if you are affiliated to the Belgian social security system (17.2% if not).
The only negative point for Belgian owners of French forests is that they cannot take advantage of income tax credits and reductions aimed at encouraging investment in woodland (with the exception of the tax relief on contributions paid to prevent forest fires), as these are reserved exclusively for French tax residents.
B.G: In terms of property, it should be noted that the double taxation treaty between France and Belgium provides for the taxation of both income and wealth by the country on whose territory the property is located, i.e. France. However, it should be borne in mind that the owner must enter the cadastral income from the French property in their annual personal income tax return in Belgium.
What about VAT?
B.G: In principle, since woodland properties are privately owned, the sale of standing timber is not subject to VAT and, consequently, owners do not have the option of deducting input VAT.
A-G.VW: In France, insofar as the owner is considered to be a forester, they benefit from the special agricultural regime, which may exempt them from most of the obligations incumbent on ordinary taxable persons (such as issuing an invoice, filing a periodic return and paying VAT to the state). In particular, this is the case when, for example, their average income over the past two years remains below the threshold of €46,000.
Our specialists will be happy to answer any questions you may have regarding tax and assets.
