Forestry finance for woodland owners, contractors and sawmills

In England, yes, for most commercial felling. A licence from the Forestry Commission is needed to fell more than 5 cubic metres of timber in any calendar quarter, and no more than 2 cubic metres of that allowance may be sold. It applies to trees with a diameter of 8cm or more at 1.3 metres above ground, with higher thresholds of 10cm for thinning and 15cm for coppice. Trees in private gardens, orchards and churchyards are exempt, as is felling needed for development with full planning permission, work to remove an immediate danger and some utility work. Licences usually carry a condition to restock the land, and lopping or pruning does not need one, although trees under a preservation order or in a conservation area need the council's consent. Wales and Scotland run their own systems.

Who needs the felling licence, the landowner or the forestry contractor?

The application comes from someone with an interest in the land, such as the freeholder, a leaseholder or a tenant, or an agent acting for them. The contractor still carries risk, because felling without a licence when one is required is an offence and anyone involved can be prosecuted. Contractors therefore ask to see the licence, or the record that shows an exemption applies, before the harvester goes in. Lenders financing a forwarder or harvester ask a contractor about its pipeline of work, and a forward order book backed by licensed sites reads far better than verbal promises.

• Volume. Timber felled per calendar quarter against the 5 cubic metre limit.
• Diameter. Trees at 8cm or more measured at 1.3 metres.
• Exemption records. Photos, maps and permissions kept to prove an exemption.
• Restocking. Conditions to replant attached to the licence.

GOV.UK explains when a felling licence is needed. Forestry machines can be funded through used equipment finance or plant and machinery finance. Instant Quotes shows which panel lenders could look at a forwarder, harvester or chipper.

Not for the owner of woodland managed on a commercial basis with a view to profit. HMRC guidance says income tax and corporation tax do not apply to such woodlands, so timber sold standing or felled is outside both, provided it is not altered or processed before sale. Growing timber is also outside capital gains tax, although the land it stands on is not. Two points catch owners out. VAT still has to be charged on timber sales by a VAT registered owner, and sawing or converting the timber before selling it turns the activity into a taxable trade. Inheritance tax relief on woodland depends on the facts, and agricultural relief is not available for woodland grown for commercial timber.

Does a forestry contractor pay tax on harvesting income?

Yes. The relief belongs to the woodland owner, not to the businesses it hires. A contractor paid to fell, extract or haul timber is running an ordinary trade and pays income tax or corporation tax on its profits, and it can claim capital allowances on the machines it buys. That difference matters when a contractor finances kit, because the annual investment allowance can reduce the tax bill in the year a forwarder or harvester is bought, while the lender still looks at the cash the machine earns over the term.

• Ownership. Whether the income comes from owning woodland or from contracting.
• Processing. Whether timber is sold as cut or sawn and converted first.
• VAT. Registration status and VAT charged on timber sales.
• Allowances. Capital allowances on machinery bought for contracting work.

GOV.UK sets out tax guidance for woodland owners. A contractor replacing machines can also refinance equipment it already owns. Instant Quotes lists panel lenders for forestry machinery.

Illustration (a made-up example in round numbers; no rates implied). A two-machine harvesting contractor's forwarder suffers a major failure with three sites booked for the winter. A used replacement costs around £150,000. The contractor's harvester is already on hire purchase with eighteen months to run. A lender funds the forwarder on a new agreement, valuing it on hours and an independent inspection, and the old machine is sold for parts to reduce the deposit. Booked work from two management companies supports affordability, so the harvester agreement is left in place rather than refinanced.

Forestry's risks are physical and market-driven. Storms can flood the market with windblown timber and depress prices; wet winters halt extraction while finance payments continue; mill demand follows construction activity. Machine finance is secured on the machine, and directors are commonly asked for personal guarantees. Before borrowing, consider hiring a machine for a peak contract, subcontracting extraction, selling standing rather than at roadside to pass harvesting risk to the buyer, or phasing planting over several grant rounds. For woodland owners, selling carbon units or entering a joint venture with an investor can fund planting without debt. Owners turning woodland into a visitor or event business should read our farm diversification finance page.