Invest in projects that benefit the planet and the economy

Stuart Greenwood is a Partner in the rural property and business team at Shepherd and Wedderburn

The Intergovernmental Panel on Climate Change’s recent report on climate change and land use called for a reduction in the consumption of red meat and dairy products. This research was taken by many as concluding that all red meat and dairy production had adverse effects, to the frustration of Scottish farmers, who, in my experience, take their environmental responsibilities very seriously.

Scotland’s farmers are directly affected by the impact of climate change and are constantly adopting practical, workable solutions to minimise their environmental impact. Between 1990 and 2017, Scottish agriculture reduced its net greenhouse gas emissions by 29 per cent.

Indeed, Scotland is ideally suited to provide red meat production in an environmentally sustainable manner. Approximately 80 per cent of Scotland’s agricultural land is not suitable for cereal, fruit or vegetable production and best suited for use as pastureland. Scotland’s grassland also functions as a natural carbon sink. Scotland is well-placed to lead from the front when it comes to sustainable agriculture – and Scottish farmers are determined to do so.

Hamish Lean is Head of Rural Property and Business at Shepherd and Wedderburn

This is also recognised and supported by the Scottish Government, which this year announced an initial £40 million to support the industry’s move to lower carbon farming. Its Agricultural Transformation Programme will assist the sector to reduce greenhouse gas emissions and support sustainable farming and farm use, while restoring and protecting natural habitats and building sustainability through business practices that encourage productivity, innovation and inclusion.

Likewise, the forestry industry in Scotland also has a key part to play, both in an economic recovery from Covid-19 and mapping a route to a greener, more sustainable future. Trees are a crucial natural carbon solution and, in addition to carbon capture and offsetting, forestry can support a number of sectors, for instance through the development of co-located wind farms within existing plantations or provision of sustainable, locally sourced materials for use in the housebuilding industry.

Despite the economic impact of the pandemic, the forestry sector remains buoyant. Market activity demonstrates that forestry is seen as a relatively ‘safe’ asset for investment in uncertain times, and while interest rates remain at a historic low.

The forestry sector also offers specific tax reliefs/benefits:

– income tax: no income or corporation tax is payable on income generated from the sale of timber from the ownership of commercial woodlands;

– capital gains tax (CGT): any increase in the value of a timber crop is exempt from CGT, if it has been managed as a commercial investment;

– rollover relief: those who have a CGT liability arising from the sale of a business asset can defer CGT liability by investing in a qualifying asset such as timber;

– business asset relief: commercially managed woodland qualifies for 100 per cent business property relief if held for two years or more. On death, there is no inheritance tax payable on the total value of land and trees. In addition, any CGT liability rolled over (as noted above) will extinguish on death.

These tax benefits, coupled with historic increases in the price of timber and the UK’s position as a net importer, have fuelled significant rises in the values of forestry property. Currently, appetite appears to be strong for forestry as an asset in both stable and turbulent times.

In the longer term, although the carbon efficiency of trees is undisputed, many see woodlands and forests as an untapped resource in providing much wider benefit by offsetting carbon produced in many other industries. While carbon offsetting arrangements are still in their infancy, they offer considerable potential, both financially and in terms of long-term sustainability.

We are advising landowners, charities and commercial entities on various ways in which carbon offsetting arrangements may be implemented and facilitated. There is an opportunity for businesses to explore ways that their carbon emissions may be offset to ensure a buoyant green economic recovery from the pandemic.

Investment in projects that benefit both the economy and the planet must be at the heart of any green recovery. Sustainability in Scotland’s agriculture and forestry industries is a central piece of the puzzle.

Hamish Lean is Head of Rural Property and Business at Shepherd and Wedderburn and Stuart Greenwood is a Partner in the rural property and business team.

Invest in projects that benefit the planet and the economy – Hamish Lean and Stuart Greenwood