The Greenchip forestry fund has been launched to take advantage of the prevailing low market values of freehold forests.
These reflect the depressed state of the UK timber market where prices are only one-third in real terms of those in 1996. These low prices resulted from a combination of factors but in particular the influx of cheap timber from the eastern Baltic states following their independence. However, rapidly growing demand in China is predicted to be the most significant factor in increasing the world price of timber.
The UK is in an exceptionally good position to benefit from this. Forestry benefits from a beneficial tax position. There is no income or corporation tax on forestry and it is exempt from inheritance tax after two years of ownership. Only the land is subject to capital gains tax but not the timber.
The Greenchip fund is managed by Scottish Woodlands, which is the country's longest established private forest management company with a turnover in the region of £25m a year. It manages around 200,000 hectares of rural property.
Returns should be a minimum of 6.2 per cent net, which is equivalent of over 10 per cent a year for higher-rate taxpayers. The return should rise over the years.
The fund is marketed to IFAs through Fundconsult.com. The minimum investment is £30,000.
Fund Consulting has made an arrangement for those with mortgage-free houses to borrow against them to invest in this fund and so avoid inheritance after two years. The cost of the mortgage to the houseowner is likely to be nothing because the timber felled each year within the fund provides enough income to meet the mortgage costs.
I find this investment particularly attractive as part of a bigger portfolio.