Finding an investment that grows – literally - every single day sounds like an impossible dream.

But that’s what you may get if you buy into Britain’s woodland and forests, an investment that has recently witnessed a spectacular surge in popularity.

With good reason too: whether bought directly or via specialist funds, money ploughed into forestry saw a remarkable return of 20.6 per cent last year, research from the Investment Property Databank (IPD) shows. Such performance beat that of shares, housing, bonds - and even commercial property.

That takes some doing, and it’s down to a stellar mix of rising prices, generous government tax breaks and fear of stagnant growth in rival assets such as UK house prices.

Vigorous interest from buyers is also driving demand; and it’s not just wealthy individuals keen to find a home for City bonuses but conservationists and investors on the hunt for environmentally-friendly projects.

Buying a wooded piece of England’s green and pleasant land (and that of Scotland, Wales, and Northern Ireland too) offers much more than just ownership and the possibility of rises in land value over the years.

First, there’s the soaring price of timber grown for commercial use.

Demand for wood across the building materials industry worldwide is currently red-hot, pushing up prices for the estimated eight million tonnes of timber harvested every year in the UK.

The Government is also helping buoy prices. Its policy on combating climate change has trained the spotlight on renewable energy, and biofuels - energy from plant waste such as trees and straw – are much in demand. Sawmill residue, in particular, is a critical biofuel component, and so wood prices have risen in response.

“Demand for wood across the building materials industry worldwide is currently red-hot, pushing up prices for the estimated eight million tonnes of timber harvested every year in the UK.”

And, although prices are already rising, they’re actually still way off highs achieved during a purple patch in the early 1990s: leaving plenty of room for catch-up, say industry specialists.

But while the price surges lure new investors, it’s the tax breaks that carry the biggest temptations.

All timber sales are free of income tax and, over the longer term, there’s no capital gains tax to pay on the value of timber not sold but kept for many years growing as part of a young forest (although rises in the land price will still be liable for CGT when sold).

So if you’re approaching retirement, you could opt for a mature forest with plenty of wood for sale and enjoy regular tax-free income from it. Or if you’re younger, you could benefit instead from anticipated rises in the value of young trees on land over a number of decades, and then benefit from the wood sales years later.

That’s not all: if you own the woodland at your death, there’s no inheritance tax (IHT) to pay on either the land or trees if you’ve held them for at least two years.

For the final icing on the tax cake, a forestry investment can also absorb other CGT liabilities. Say you’ve sold a business and have a large capital gain; by investing it into a woodland project and holding it there until you die, the tax bill you’d have otherwise had to pay is written off.

“if you own the woodland at your death, there’s no inheritance tax (IHT) to pay on either the land or trees if you’ve held them for at least two years.”

Given the recent turmoil in other investments – jittery stock markets, slowing house prices for buy-to-let, sluggish growth in bonds – it’s no wonder that many high-net worth individuals are turning to alternatives like forestry.

Woodland specialist Forestry Investment Management (FIM) has plenty on offer for direct buyers.

In the Cotswolds, near Cheltenham, a 28.1 hectare wood of oak and broadleaves is on offer for upwards of £150,000; further south in East Sussex, the same sum gets you 34 hectares of mature pine and larch.

You don’t even need to spend that much. In Cynwyl Elfed, Carmarthenshire, you can purchase 21.7 hectares of Sitka spruce – one of the most commercial softwoods – for roughly £45,000. Alternatively, its specialist ‘forest funds’ let you pool your cash with others from £25,000.

The green dream, though, needs careful thought: “to qualify for the tax breaks, you must have a management plan drawn up,” says Alan Guy of Fountains forestry management company.

“It might sound nice to pick a piece of woodland in Sussex and enjoy the scenery – and produce a stream of oaks every few years – but in commercial terms, it’s a non-starter.”

That means hiring a company to manage the commercial side for you and find buyers; Fountain estimates that you can expect to pay at least £1,000 a year for the smallest forests, while FIM says its annual charge hovers around 0.6 per cent of your overall investment.

While last year’s remarkable 20 per cent returns aren’t sustainable, long-term returns are estimated at 5 per cent a year.

However, on top of financial returns, you can also work with bodies like the Woodland Trust to help preserve ‘heritage’ forests.

Much commercial conifer forestry is planted on former ‘ancient’ (since 1600AD) woodland; rather than replant conifers, you could – over a period of 20 years, say – allow the ancient trees to re-emerge, says Woodland Trust development director Karl Mitchell.

“There’s a social benefit to this: the owner would still get an immediate return from the current conifer crop of plants, spread out over many years, as well as sell the land on later in life.”

By Sam Dunn