Biodiversity Net Gains: Legal and Tax Implications

Since February 2024, Biodiversity net gain (BNG) has been a mandatory requirement for new planning applications on major developments. This now means that developers will need to deliver a BNG of at least 10% to replace any biodiversity destroyed through their build. This does not yet affect smaller builds, but it will also come into effect for them from April, with requirements differing within each planning authority.

The aim is to encourage developers to actively look for BNGs, e.g. creating new habitats or enhancing existing ones. However, developers are permitted to acquire off-site BNG units if they are difficult to acquire on-site. This allows landowners to diversify and take land out of agricultural use, if they so wish, and to create and sell BNG units to developers.

There are various, differing mechanisms for achieving a BNG, and anyone interested should look into this in more depth. There are a number of different legal steps and structures that can evolve in the set-up of appropriate arrangements to allow landowners to effectively sell BNGs.

Although not necessarily a problem in most cases, many arrangements will involve a large upfront payment to the landowner. Therefore, with large cash receipts, this subject area needs to be reviewed and clarified, particularly in relation to accounting and taxation purposes.

Currently, the taxation of BNG has yet to be confirmed, and it is assumed that because there is a large upfront payment, this will be treated as a capital receipt. However, in some cases, this will be treated and taxed as income, although payment can be deferred over the course of the agreement.

Another huge concern for landowners is whether Agricultural Property Relief will be available for Inheritance Tax purposes over any land put into a BNG scheme. Confusion has also arisen over the VAT treatment on the sale of BNG units, owing to conflicting information currently being received from Defra and HMRC.

A consultation was launched in March 2023, and a response was due in the autumn of 2023. However, it was announced in the Autumn Statement that this was being pushed back to Spring 2024, so answers are still awaited as to the position.

The point to note is that landowners should try to understand and plan for any potential tax risks that arise with the uncertainties, as well as those that can be carried out at that particular time.

In addition, there could be times when a BNG consideration forms part of a wider programme. These often involve multiple landowners in some sort of joint venture or profit-sharing arrangement. All have their own individual tax considerations and challenges, and much will depend on the varying tax issues and concerns of the landowners concerned, be they corporate or private.

If you would like to know more about the legal and tax implications of Biodiversity Net Gains and how we can help, l offer a free initial 15-minute telephone appointment to discuss your needs. I can be contacted on 0330 818 3081 or via email at [email protected]