Biodiversity net gain requires most developments in England to leave nature measurably better off — a 10% uplift, maintained for 30 years. The rules changed materially on 6 August 2026: sites of 0.2 hectares or below are now exempt, short temporary developments are out, and the self-build exemption has gone. HMRC also published tax guidance in May 2026, which finally answers how the money is treated.
The requirement
BNG sits in Schedule 7A to the Town and Country Planning Act 1990, inserted by Schedule 14 of the Environment Act 2021. Developers must deliver a biodiversity net gain of 10%, measured with the statutory biodiversity metric, and habitats created or enhanced must be maintained for at least 30 years.
Commencement ran in stages: mandatory for major developments from 12 February 2024, for minor developments from 2 April 2024, and for nationally significant infrastructure projects from 2 November 2026.
The gain hierarchy
Gains are delivered in a set order:
- On-site creation first;
- Off-site next — on the developer's own land, or by purchasing units;
- Statutory biodiversity credits from government as a last resort, and priced to be one.
One relaxation arrived on 6 August 2026: minor developments not otherwise exempt may now consider on-site and off-site options at the same time rather than exhausting the first before turning to the second. For a constrained small site that removes a genuinely unproductive sequencing exercise.
The exemptions after August 2026
This is where the position has moved most, and pre-August advice is now wrong in both directions. The current exemptions include:
- De minimis impact — less than 25 square metres of on-site habitat, or less than 5 metres of linear habitat such as hedgerow;
- Small sites — new from 6 August 2026 — where the site area within the red line boundary is 0.2 hectares or below;
- Short temporary developments — new from 6 August 2026 — where permission is granted for five years or less;
- Householder applications, off-site BNG gain sites, high speed rail, urgent Crown development, and permitted development;
- Applications made before commencement — before 12 February 2024, or 2 April 2024 for minor developments.
And one exemption withdrawn: the self-build and custom build exemption no longer applies to applications made on or after 6 August 2026. A self-builder who assumed they were outside BNG on the basis of 2025 guidance is now inside it unless the 0.2 hectare test saves them — which, for many single plots, it will.
The amending instrument is SI 2026/790, in force 6 August 2026, with a transitional rule: permissions already granted and applications already submitted remain subject to the previous legislation.
How it is taxed — the part nobody could answer until recently
HMRC published a technical note on ecosystem services on 14 May 2026, and it resolves several questions that were previously guesswork.
For developers. BNG expenditure is generally allowable for income or corporation tax where it is incurred in a development trade. Where the land is not held on trading account, the cost is capital rather than revenue.
For landowners selling units. Receipts are taxable, and the category depends on the arrangement. On farmed land they form part of the farming trade, so farmers' averaging and the other trading reliefs can apply. Where an intermediary takes an interest in the land, payments are property business income — rent. Otherwise they are trading income.
Timing. On the accruals basis, income is recognised under GAAP, which may require it to be recognised up front, spread over the life of the agreement, or some combination. Critically, the 30-year BNG commitment does not by itself dictate the tax timing — nor does the duration of the commitment determine whether a payment is capital or revenue. Cash basis users recognise receipts when received.
VAT. This is the distinction most likely to be got wrong: BNG units are standard-rated when supplied by a taxable person, because they are tradeable instruments representing an offset. Statutory BNG credits are outside the scope of VAT. Same subject matter, opposite treatment.
SDLT. Ecosystem services payments are not a chargeable interest, so no SDLT arises on them — but SDLT does apply where land is acquired or a conservation covenant created.
Inheritance tax. Section 61 of Finance Act 2025 provides for agricultural relief on land in environmental management agreements, and entering such an agreement should not itself stop land qualifying as conditionally exempt.
Woodland, and a trap. Commercial occupation of UK woodland is not a trade under section 11 ITTOIA 2005, so woodland carbon unit income falls outside income tax and the related expenditure is not allowable. That treatment does not extend to peatland, which is a distinction worth holding onto.
Stacking. Where several credit types arise from the same land, the receipts and expenditure for each activity are considered separately rather than as one pot.
What landowners and developers should do
For developers, check the exemptions against the August 2026 rules before commissioning metric work — the 0.2 hectare test and the five-year temporary rule remove a meaningful number of small schemes, and paying for an assessment you did not need is a pure cost.
For landowners, the tax analysis now needs doing before the agreement is signed rather than after. Whether receipts land as farming trade income, rent, or something else turns on how the arrangement is structured — particularly whether an intermediary takes an interest in the land — and that is a drafting decision with a permanent tax consequence. Our guide to agricultural accounting covers the wider farm position.
Acumon advises landowners, farmers and developers on the tax and accounting treatment of environmental schemes through property taxes, business tax and inheritance tax planning work, with ESG assurance where reporting follows. If you are selling biodiversity units off farmland, the VAT position and the income category are the two questions to settle before the agreement is signed.