Another point about burying the timber inside the insulation is that it will dry out even further than kiln drying can achieve. This doesn't directly reduce strength but may cause cracking around the fasteners, which is worse if anything.
With design of timber structures, strength is not the only consideration. When the load is continuous, as it is here, long-term creep becomes the critical design factor. Unfortunately, the timber design code rules are mainly concerned to keep this creep to very low levels for aesthetic reasons in buildings. We can be a bit more relaxed for tanks, but I am not sure how much. Does anyone here have long-term experience?
Because timber inevitably moves a bit, the liner must be able to accommodate this movement. A few years ago I had a very bad experience with a paint-on coating on a timber deck. It was not extensible enough to take the movement and cracked after only a few years. Needless to say, I went back to the good old sheet Butynol after that. Possibly an outside environment, even in a mild climate is more severe than this one, but, on the principle of never buying version one of anything, I'd not be happy with any liner that wasn't backed up by a lot of years of successful experience.
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