Biodiversity Net Gain and tax

Hillier Hopkins LLP

Chartered Accountants & Tax Advisers

Call +44 (0)330 024 3200 and discover how we can help you.

After repeated delays, the Biodiversity Net Gain regime is expected to come into full force in February 2024. Yet questions remain over the tax treatment of the purchase, sale and management of land.

The Biodiversity Net Gain (BNG) regime, introduced via the Environment Act 2021, will require all development, including residential development, to deliver a mandatory 10% improvement to natural habitats to offset the impact of that development. Planning applications will need to outline how the loss of habitat will be mitigated by improvements to parts of a site, by improvements to off-site land, or through purchasing BNG credits with third-party landowners delivering biodiversity improvements.

Developers or third parties will be required to manage those improvements over a 30-year period, with Natural England establishing and maintaining a biodiversity gain register.

The BNG regime has been twice delayed and is expected to be implemented in February 2024. However, guidance on the scheme has yet to be published and questions remain over the tax treatment on the purchase and sale of BNG credits.

Offsite management – tax

Developers that look offsite for biodiversity improvements are likely to pay a landowner a lump sum with that landowner managing the site for a 30-year period.

Questions remain whether that ‘income’ is recognised in that first year of the 30-year agreement or deferred over the 30-year period. If taxed on day one, what happens to expenses a landowner will incur over the 30-year period? Will they be deductible and if so against what as there will be no further income from the developer?

And then there is the question of capital gains tax. If the habitat has been created to allow a landowner to sell BNG credits, will HMRC argue that it is a trade and subject to income tax? And will any likely increase in the value of the land trigger a potential capital gains tax liability if sold.


VAT will be charged on the purchase of BNG credits. Developers delivering new-build homes will be able to reclaim that VAT with new-builds zero-rated. That will become a little more complex on mixed-use schemes.

However, VAT treatment over the 30-year management of offsite BNG schemes becomes considerably more complex. It is widely expected that third parties will be employed to manage these new habitats, for example, wildlife charities and land stewards. They may be required to charge VAT for their services with no way for landowners to reclaim that VAT.

Again, where developers choose to include BNG onsite, they too will have a 30-year obligation to manage that site. If they choose to outsource to a third party, will they have to charge VAT and will they be able to reclaim that VAT?

Inheritance tax

Questions remain too over potential future inheritance tax liabilities. Land used for BNG projects may be taken out of agricultural use with Agricultural Property Relief (APR) lost leaving it exposed to IHT. Business Property Relief (BPR) may be available, but to qualify the business must be run as a profit.

It is, of course, possible to create and meet biodiversity improvements with animal husbandry and that may be a suitable route until clarification is provided.

Where is the guidance?

The lack of guidance will be worrying for developers, landowners and those third parties managing BNG habitats.

DEFRA has issued limited guidance but worryingly HMRC has said that it cannot be relied upon. HMRC has also said that it has no plans to issue guidance on the tax treatment of the BNG regime.

Hiller Hopkins sits on various policy advisory groups that represent the concerns of industry. This lack of guidance has been raised with HMRC and we currently wait for a response.

Do you need extra information?

Ruth Corkin - Prinicipal - VAT and Indirect Tax Advisory at Hillier Hopkins

Ruth has been involved with VAT for over 30 years. She started her VAT career as a Customs and Excise Officer in Essex and then moved into consultancy with a variety of well-known accountancy firms. She is well known in the VAT world and is the proud author of many articles and technical works.

Contact Ruth at or on +44 (0)1908 713860

Based at the following office - Milton Keynes, Watford and London