Biodiversity Net Gain

Biodiversity Net Gain (BNG) is a new requirement to development in England that requires developers to demonstrate a measurable improvement in biodiversity as part of their projects. BNG has been compulsory for development since February 2024, and all stakeholders are now grappling with the various requirements. This initiative presents both opportunities and challenges for developers, farmers, and landowners. While considering these requirements, it is vital that all the stakeholders consider the accounting and the tax implications.

What is BNG?

BNG aims to ensure that development projects result in a net gain of at least 10% in biodiversity, measured using a standardised biodiversity metric tool. This means developers must leave the environment in a measurably better state than it was before the project began.

This can be achieved through:

• on-site biodiversity: creating habitats within the development site's boundaries
• off-site biodiversity: enhancing biodiversity on the developer's land outside the development site or purchasing biodiversity units from landowners who have created habitats elsewhere
• statutory biodiversity credits: purchasing credits from the government as a last resort when on-site or off-site BNG is not feasible.

What are biodiversity credits?

Developers can use biodiversity credits to fulfill their BNG requirements if they cannot achieve the necessary 10% net gain on-site or through off-site agreements. Developers buy these credits from the government, and the revenue is used by the government to support habitat creation and improvement projects throughout England. Statutory biodiversity credits are priced in tiers according to the uniqueness and ecological importance of the habitat being established, with costs ranging from £42,000 to £650,000 per credit, not including VAT. Developers should only buy statutory biodiversity credits if necessary, and they need to show why they can't fulfill their BNG obligations using on-site or off-site methods.

How BNG impacts farmers and landowners

BNG presents farmers and landowners with an opportunity to generate income by registering their land to create biodiversity units. Developers can purchase these units to meet their BNG obligations. This can be particularly beneficial for landowners seeking to diversify their income streams or contribute to environmental sustainability.

Tax implications of BNG

While BNG presents new income opportunities for landowners, it also comes with complex tax implications that need careful consideration. Some of the key tax considerations include:

• Income Tax: Whether the sale of biodiversity units is treated as income or capital gains will significantly impact the tax liability.
• Corporate Tax: Where the costs relate to a trade, the timing of recognition in the accounts will be key in determining the corporation tax. Careful consideration needs to be made in respect of the 30 year obligations.
• Capital Gains Tax (CGT): CGT may be applicable if the value of land increases as a result of BNG improvements and is subsequently sold. The tax implications depend on whether the BNG activities are classified as trading or investment.
• Inheritance Tax (IHT): Land managed under BNG agreements may qualify for Agricultural Property Relief (APR) or Business Property Relief (BPR), potentially reducing IHT liabilities. However, there are specific conditions that must be met.
• VAT: The sale of biodiversity units will be subject to VAT when they are sold.
• Stamp Duty Land Tax (SDLT): If further land has to acquired, this will represent an additional cost.

How we can help

Navigating the complexities of BNG and optimising your accounting and tax position requires expert advice. Our team of tax professionals can help you understand the tax and accounting implications associated with your BNG strategy.

For more information on the issues raised in this article, please contact Caroline Fleet, or your usual Crowe contact.