Creating A Habitat Bank: What You Need To Know

17 May 2024 - Nick Banks

Thinking of selling biodiversity net gain?  Kate Russell of Tellus Natural Capital explains what you need to know…

The statutory Biodiversity Net Gain (BNG) market is rapidly taking off  and there is a lot of interest from farmers and landowners in developing habitat banks to supply Biodiversity Units (BUs) to developers who need to offset the damage that their development causes.

Statutory BNG is a 30 year commitment with no guarantee of what the land can be used for afterwards, so it is vitally important to consider all the implications carefully. Here we look at the steps that need to be taken and consider some of the issues that farmers and landowners need to take into account.

What land is suitable?

The aim of a habitat bank is to increase biodiversity, so the best place to start is an area of low biodiversity, such as arable land or improved grassland. Think about where the site is within the wider farm and what impact it might have on adjoining land over the next 30 years; could it complement an existing enterprise, such as a camp site? Or might it form a personal green belt to protect views?

A huge amount of information on habitats, designations and local conservation priorities can be gathered from websites such as Defra’s Magic Map, The LandApp and Natural England’s information on National Character Areas. All this can help you to select the best location.

Many county councils are now preparing their first Local Nature Recovery Strategies which will map biodiversity priority areas — you may want to feed into the consultation process.

What is the demand for Units?

Before spending too much time and money on surveys, consider who the potential buyers might be. What development is happening in the area? What types of habitat are likely to be damaged? And how many other habitat banks are coming forward to supply the market?

You need to be sure that you will be able to sell enough BUs to make the project viable and fund the gap between delivery and sales.

How many Biodiversity Units can you create?

Every site is different, so you will need to work with a good ecologist to get a baseline survey of the site and draw up a management plan for the creation, restoration or enhancement of the habitat. The ecologist should be able to advise on what is best for nature, but the plan must also be practical and realistic for the farmer to follow. Will it create the types of habitats which developers will need? What will the ongoing site management cost over the next 30 years?

Once the management plan is sketched out, the ecologist can do a further desktop Biodiversity Metric assessment to establish how many BUs the site should be able to deliver.

The cost of this phase will depend on the size and complexity of the site, but will typically be several thousand pounds.

Getting ready to sell

Before you can sell any BUs you will need to have in place a binding legal agreement for the 30 year period (usually a s.106 agreement) and a formal Habitat Management and Monitoring Plan (HMMP). The site must be registered on the Biodiversity Gain Site Register, which costs £639 per site, plus £45 to allocate each BU to a specific development. The local planning authority may also to want to see other suppoi1ing evidence, such as proof of ownership and evidence of how the funds will be managed over the 30 year period. Some local authorities are asking to be paid in advance for monitoring and verification.

At this point costs will start to accumulate significantly, so many landowners are pausing and seeking option agreements with developers before committing further.

Keep an eye on the big picture

As with any form of diversification, it pays to keep an eye on the core business. How might a habitat bank affect the rest of the farm in terms of cashflow, labour requirements and management time?

Tax is always an important consideration and while we have been told that land in habitat banks should be eligible for agricultural property relief from inheritance tax, there are many other uncertainties around the tax treatment of payments for BUs, including whether income will be “trading” or “investment” income and their VAT status. HMRC is looking at these and other issues at the moment. You should take specialist advice on your own tax position.

Risk v reward

The potential income from the sale of BUs could be very attractive, but there are many steps to be taken along the way and there are inevitably risks involved where a project will run for 30 years. It is important to take time to understand the requirements of both developers and local planning authorities, remembering that this is still a new subject for everyone.



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