Legislation on Biodiversity Net Gain (BNG) became mandatory in England for new planning applications made for major development from 12 February 2024, and small sites from 2 April 2024, although there are some exemptions from this. This article explains what BNG is and the potential, although currently uncertain, tax implications for those selling BNG credits.
What is BNG?
BNG is an approach to development and land management, that aims to leave the natural environment in a better state than it was before the activity took place.
How does it work?
Those undertaking development work need to assess changes in biodiversity value (gains or losses) brought about by development or changes to land management.
This is measured using the “Biodiversity Metric”. A net gain of 10% is required and a biodiversity gain plan must be produced to show how this gain will be delivered.
Normal wildlife and habitat legal protections are not affected.
How is the net gain achieved?
This can be achieved in three ways:
- on-site
- off-site
- via the statutory biodiversity credits scheme.
On-site is within the boundary of the project and off-site means land outside the boundary, regardless of the land ownership.
As well as the developer/land manager taking direct action to produce off-site gains, gains can also be achieved by buying Off-site Biodiversity Units. These units are created by another party who is creating a BNG by investing in habitat creation (“habitat banks”).
This habitat needs to be managed for a minimum of 30 years and the price of the credits will reflect the costs of doing this. The land is placed on a National Biodiversity Gain Sites Register.
What are biodiversity credits?
If the gains cannot be achieved on or off site then, as a last resort, the developer or land manager will have the option to buy Statutory Biodiversity credits from the Government.
These are tradeable financial instruments. The Government will then invest the funds in habitat creation.
How are sale of biodiversity units taxed?
It will be important for those selling the units to understand the VAT, capital gains tax and direct tax treatment of these receipts. HM Revenue & Customs and representatives from interested stakeholders are working together with the aim of providing clarity on the tax treatment of the sale of the units.
The sale will result in a large up front payment, so it needs to be determined whether this will be treated as a capital sum or, more likely, treated as income.
There is also the question of whether this will be spread over a 30 year period, for both tax and accounting purposes.
It is expected that HMRC will issue guidance on this in due course. Landowning charities are also keen to know whether the sale of the units will be subject to income/corporation tax as non-primary purpose trading income. This is another area being discussed with HMRC.
From the VAT side, the sale of units is a taxable supply and VAT is charged at 20%.
It will also be necessary to consider whether inheritance tax reliefs (agricultural or business) will still be available in respect of land which is put into a BNG scheme.
Hopefully guidance from HMRC will be forthcoming soon as the sale of units is already been undertaken by some landowners.
Read the latest Charities and Non-profit newsletter to find out more about further changes that will impact the sector.
If you would like to discuss how this guidance might affect you, please get in touch with our team.
This article was correct at the time of publishing.
