The planning for a generational handover of a forest estate and discussions with the next generation should be conducted well in advance. The earlier you start planning for a generational handover, the more options you will have. Ultimately, it is important to find the right solution for you and those taking over the estate, while taking the tax impact into account. Metsä Group’s experts in generational handovers can help you find the right solution.
The many options for the generational handover of forest estates
You’re not alone if you are about to inherit a forest, or you are planning to pass on your forest assets to the next generation. Most Finnish forests change ownership within families as inheritance, gifts or a sale to a family member.
Remember this advice when you are planning for a generational handover
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START the generational handover well in advance. At the latest, bring up the topic when you reach retirement age.
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BREAKING UP forest assets often also diminishes their value. Try to find a single owner for the forest estate and make sure they are genuinely interested in managing the forest.
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CONSIDER and chart the different options with your children and expert. Look for a solution everyone can be happy with.
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GOOD planning well in advance will save you money. At the same time, it will ensure the continuity of the estate, and all parties can avoid unnecessary taxes.
Direct sale is suitable for the handover of an estate with good growing stock
A direct sale is a good option when the transferor has no tax returns for forestry operations, and the forest is expected to yield a stable profit. In a direct sale, the buyer can make use of tax returns for forestry operations. The payment time for the direct sale can be agreed so that the sale can be funded through steady felling income, without having to do more significant one-off felling.
The deed of sale for the estate must be drafted in a standardised form and certified by a purchase witness. The buyer pays a transfer tax of 4% of the sale price. The seller may have to pay disposal gains tax, but disposal gains in generational handovers are tax-free with certain conditions.
Gifting a forest estate has no tax impact for the transferor
If you gift a forest estate, the recipient of the gift pays gift tax for it. The transferor does not incur any taxes from the gift. The new forest owner can file for tax returns from forestry operations, and with can deduct part of the forest estate’s gift tax from their wood trade income with certain conditions. You can assess the amount and tax impact of the forest gift tax deduction with our forest estate calculator.
The transferor can also consider retaining the right of possession, which allows the transferor the right to conduct felling and receive a profit from it during their possession. Retaining the right of possession reduces the fair value of the donated estate, as well as the amount of gift tax. If you decide to retain the right of possession, a fixed-term right of possession makes things clearer than a lifetime right of possession.
A sale is a gift-like sale when the sale price is at most 75% of the fair value of the forest. In this case, the buyer pays the sale price and gift tax.