Biodiversity Net GainÂ
Having first been introduced in The Environment Act 2021, Biodiversity Net Gain (BNG) has now become mandatory in England for most major developments and some small development sites.
The principle of BNG is to ensure that the natural environment is in a measurably better state than it was before the development commenced. Damage to habitat caused by the development must be offset by improvements in biodiversity, with an overall net gain of 10%. Developers must look to source the 10% BNG requirement onsite and if this is not possible, they can buy statutory biodiversity credits.
What does all this mean for our landowners?
Since it is expected that there will be an increased demand for BNG habitat creation, landowners can play a part in supplying suitable sites.
There are various ways in which land can be used for BNG, which ranges from landowners leasing the land, to organisations who will create the habitat and manage it, to registering land for BNG credits with Natural England and creating and managing the habitat themselves.
Before entering into an agreement, landowners will need to consider the following:
- These schemes have a 30 year commitment.
- There is an ongoing liability with the contract.
- Are you receiving a reasonable market price.
- There will be an ongoing requirement to manage the habitat.
Whilst there are opportunities for landowners, the tax position around the various legal structures is complex and careful review is essential.
Landowners should also consider the following:
1. Taxing the receipts
As yet, HMRC have not provided any guidance on how BNG payments will be taxed. In particular, whether the receipt would be taxed as income, or capital.
If the land is held by individuals, then the receipt would be taxed at up to 45% if it is income and 20% if it is capital.
For companies, the tax rate would be up to 25% regardless of whether it is an income or capital receipt.
If receipts are regarded as capital, then there may also be an opportunity to rollover the gain into new replacement assets and defer the tax payment.
2. Inheritance tax position of the land
Following HMRC’s consultation, it has been confirmed that land managed under an environmental agreement will qualify for agricultural property relief (APR).
There are certain conditions which must apply before APR will be available on this land, which includes the following:
- The land is managed under an environmental agreement with, or on behalf of, the UK government, Devolved Administrations, public bodies, local authorities, or approved responsible bodies.
- An agreement must be in place on or after 6 March 2024. This includes an agreement entered into before 6 March 2024 if it remains in place on or after 6 March 2024.
- Relief will continue to be available where an agreement has concluded if the land continues to be managed in a way that is consistent with that agreement.
- Relief will only apply if the land was agricultural land for at least two years immediately prior to the land use change.
- The existing holding period for APR will not be restarted by the land use change.
This is good news for the availability of APR on the farmhouse, which only qualify for APR if the house is occupied in connection with agricultural land. Therefore, creating areas of habitat for BNG on a farm shouldn’t necessarily reduce the availability of APR on the farmhouse.
If agricultural property relief is no longer available for whatever reasons, then landowners should factor this into their wider estate planning.
For further advice on BNG please contact our specialist Farms and Estates team below.
