EIC Nature and Biodiversity Guide

Photo by Krzysztof Niewolny on Unsplash

I am very proud to be listed as an author of the Environment Industry Commission’s (EIC) new publication on Nature and Biodiversity.

My part of this was in the legal and policy overview section examining the history and intent of UK and international policy moves to use Natural Capital as a framework to judge progress on moving towards better environmental behaviours. In England this has given birth to Biodiversity Net Gain, which is looked at in some detail.

It is available here:


Taxation of BNG offsets – a rant

Sleeping Tiger by Michael Green on Unsplash

I am starting to get a lot of enquiries about how income and expenditure for the various ecosystem service offsets are taxed. In this short piece I am going to restrict myself to Biodiversity Net Gain (BNG) introduced by the Environment Act 2021.

Biodiversity Net Gain was formally introduced to us in the Environment Bill which was laid before Parliament in January 2020, more than 4 years ago, but anyone who was awake would already have known this was coming as the direction of travel had been clearly signposted, not least in Gove’s 25 year plan. HMRC have therefore had a lot of time to get to grips with how it works and to establish the tax treatment of the various payments under the scheme.

I was pleased that they finally woke up to it in March 2023 when the consultation was launched after 3 years of sleeping, so I was excited to hear their thoughts. But the responses that HMRC give in their recent update on this have made me fall off my chair.

After a whole year of thinking about this all they can say can be summed up in the following two extracts, first from paragraph 2.6

The absence of accounting standards was raised as a key issue, given its potential implications on tax reporting.

Now from paragraph 2.7

There was a consensus amongst respondents that HMRC should issue guidance, including worked examples, to provide clarity on the tax treatment of the production and sale of ecosystem service units.

So..why not issue guidance? HMRC have now been sleeping on this for more than 4 years and I think we deserve better. I have clients who are making large scale investments without knowing the tax treatment of money being spent, and this is a massive failure of policy. This is a government supported investment and taxpayers are entitled to know how the various components are taxed.

HMRC are slow to provide help and advice, witness the difficulty in trying to talk to them, but very quick to charge penalties on hapless taxpayers confused about our labyrinthine tax system – hence the rather beautiful picture of the sleeping tiger above.

Rant over, for now…


A green future: Our 25 Year Plan to Improve the Environment

HMRC consultation on ecosystem markets

Book update

Photo by Mikołaj on Unsplash

I have completed my latest quarterly update on Practical Farming: Poole published electronically by Croner. The main focus of this update is a new chapter on selling ecosystem services and some commentary on the Agriculture and Rural Communities (Scotland) Bill (ARCS) published in September.

In the tax profession we need to quickly come up to speed on ecosystem services. For this reason, I have included some definitions as this can be a confusing area for the accountant or lawyer when talking to the environmental advisers. The subtlety of meaning is important so I have tried to disentangle how the language and how the business structures work. I have been working closely with some of the country’s leading environment lawyers on trying to understand the language, and I hope I have captured their essences. I will be updating this chapter regularly as things change, and especially when the government make announcements following their consultation on the taxation of ecosystem services.

I have also been working closely with a national firm of environmental consultants and satellite data providers in designing a Biodiversity Net Gain product over the last couple of years, and this has led to all sort of interesting opportunities to consider how ecosystem services can fit into land management. More on this later when this becomes public, but I mention it how as I feel it has given me sufficient confidence to enable me to write the chapter on selling ecosystem services and especially the section on Biodiversity Net Gain.

The government commentaries published alongside ARCS demonstrated a strong commitment to Crofting so I have brought Crofting into the book. I find this approach to land use interesting, and I hope it might have an important part in the future of land use in the whole of UK, not just in Scotland. This did mean I had to add some commentary on other Scottish leases and flesh out Scottish land law a bit. I am not an expert in Scottish land law, and the differences between English and Scottish law are subtle. I hope I have struck the right balance.

The Bill also introduces new thinking on farm payments in Scotland with a new framework for how these will work from 2026, when the current holding legislation in Scotland expires.

As always let me know what you think. The book is available here: https://library.croneri.co.uk/CCH_uk/pof

Statutory BNG credit costs, and a VAT trap

Photo by Avel Chuklanov on Unsplash

As we draw closer to November, when Biodiversity Net Gain becomes a statutory part of the planning process, the component parts are starting to fall into place, sometimes with a resounding thunk. We have a new part of the jigsaw today, and there may be a VAT surprise for some.

Yesterday saw a release by Defra of a significant update on where we are with these rules. Additional funding has been allocated and some new information has been provided about how the statutory credits will be valued. This information is available here.

The cost starts at £42,000 per credit for units of habitat of low distinctiveness and increase up to £125,000 for units representing habitats of high distinctiveness but with a special high price of £650,000 per unit for high distinctiveness lakes. Linear habitats have a value of £44,000 per credit for Hedgerow and £230,000 per credit for river.

And a confirmation that these are taxable and standard rated for VAT, so VAT will be added to the invoice for statutory credit purposes.

Spatial Risk Multiplier

A “spatial risk multiplier” is applied when offsetting units offsite. This is a mechanism to motivate new habitat creation close to where the development is. It is set at two when using a statutory credit.

It is important to remember that the statutory credits are only for when offset is not available either on site which is usually preferred, or offsite in the local area. The priorities will be determined by local nature recovery strategies, most of which has not yet been published. Indeed, experience suggests that these might not be available for another year or so in some cases, a long time after the rules come into place.

A lot has been written about biodiversity net gain so I don’t feel the need to add to this here, but instead I will run through a very simple example to show how this works in outline.


A developer is developing on 3 ha of modified grassland which is of low distinctiveness, but moderate condition. There is no strategic significance multiplier (which could increase the amount of units by up to 15%) in this case.

Assuming a packing ratio of 20 houses per hectare and a selling price of £200k per house. The expected total sale proceeds will be £12m.

Assuming the habitat will all be destroying as part of the development process, the units required are as follows

Distinctiveness low. Units per hectare2
Moderate condition – multiplier2
Habitat units per hectare4
Credits required to offset this with 10% gain4.4
Three hectares13.2
Spatial risk multiplier2
Total units needed if using statutory credits26.4
Price per unit£42,000
26.4 units1,108,800
VAT at 20%221,760

This represents a substantial fraction of the total sale price of £12m.


As can be seen in the example above, there might be significant amounts of VAT paid when offsets are made using statutory credits. It will therefore be important to consider what VAT outputs there will be in respect of the land.

As a general rule for building projects the first sale of a major interest in land in brackets (freehold or lease over about 20 years) will give rise to a zero rated output, and therefore this will be available as input tax.

If land is being let to a tenant the rent will be exempt and unless the land is opted to tax input tax will be restricted. Even with an option to tax, residential lettings will often be excepted from the option, so we are back at the starting point. However, there are ways of reducing VAT on building costs on that can be explored. Specialist VAT advice should be taken on this, and I will be happy to point you in the right direction for this.

Emerging back into the daylight

Photo by Joshua Woroniecki on Unsplash

My book on farming is published today on Croner i.

To me, farming is the most important and interesting trade. It is about how we feed our people and look after the world and its other inhabitants. Climate change is upon us, and many of the possible solutions to this involve farmers. I try to provide a guide to help professionals advising farmers on all this, and I hope over the years it will become comprehensive.

This and other large projects have taken much of my spare energy over the last year. I intend to start posting articles again from time to time, so be prepared for more opinionated articles coming soon. I have recently written for Croner i about the capital tax problems that farm tenancies create and how recent announcements may alleviate these.

From the business point of view, I have sent out invoice number 100 this month, showing strong growth for Poole and Co and I think I can safely say the future is assured for the business, now in its third year.

With continuing inflation I am putting my hourly rate up to £70 (plus VAT), which is halved for trusteeships and directorships. I have limited ability to take on new clients. Therefore I am imposing a minimum fee of £500 plus VAT for new clients, and will not take on work with a statutory time limit within 60 days. My minimum fee for existing clients will remain at half the hourly rate – ie £35 plus VAT.

Poole on Farming

I have, today, signed a contract for a book ‘Poole on Farming’. To me this is the most interesting and important trade of all, and the nexus between community, wildlife, landscape and food make this critical now as we face disruptive changes to our society from many directions.

The economics of farming and landed estates is changing with the evolution of farm payments, new opportunities for utilising and offsetting Natural Capital and Carbon along with new Biodiversity Net Gain rules in the Environment Act 2021. All of these will be surveyed in detail with thoughts about how these can be applied on landscape level by landowners and farmers working together.

By its nature, farming has a strong community rooted in the soil. It is one of the few trades where people work together across businesses, whether by partnership, contract farming arrangements, shared assets or infrastructure through formal cooperative structures like those provided by the Cooperative and Community Benefit Society Act 2014. I will be giving detailed instruction about all these together with pro-forma documents.

And of course all the special tax and accounting rules which I am sure you expect from me – averaging, herd basis, losses, capital allowances, VAT, and how capital gains tax, inheritance taxes work in the most common transactions with detailed guidance.

There will be thoughts on incorporation with all the advantages and disadvantages that a company can bring. Yes to R & D and land remediation relief, but what about ATED and benefits in kind. And that burning question: should the land go in?

And finally looking at various ways to diversify the use of the land and what impact this has on the business structure.

Get ready for publication in early to mid 2023.

And yes, I did pick up Oliver Rackham’s seminal work for 50p!

No changes to IHT, but some tinkering with CGT admin

Photo by Michal Hlaváč on Unsplash

On 30 November the Treasury responded to the Office for Tax Simplification about ongoing consultations, and has made two significant announcements.

Firstly that there are not going to be any changes to Inheritance Tax (IHT). This means, at least, that we can start planning again with some certainty.

Secondly, as regards capital gains tax (CGT), the government are going to move forward on some administrative changes to capital gains tax, but it looks like substantive changes are shelved for the short to medium term.

The following are going ahead:

  • Integration of reporting and paying CGT
  • Extending reporting deadline for sales of property to 60 days
  • Extending no gain / no loss window on marital separation
  • Extend roll over relief on compulsory purchase
  • Improve guidance

The following are going to continue to be considered:

  • Real time administrative arrangements
  • Technical changes on share pools
  • Private residence nominations
  • Corporate bond documentation requirements
  • Review EIS rules to help application to CGT


Chancellor responds to OTS reports on Inheritance Tax and Capital Gains Tax

Fog starting to clear

A personal perspective by Stephen Poole

This is a photograph I took in Madeira a few years ago watching the sun rise having spent the night strapped to the mountain carefully watching Zino’s Petrels roost. This was a life changing moment for me, but I think we are at such a moment now as regards management of land in the UK.

The following comments relate to England only. Scotland, Wales and Northern Ireland have their own systems. I have also left out considerations relating to Brexit.

For those involved in farming and land management, things are starting to resolve, but we are not fully home yet. I like to think of land management as being a combination of three different disciplines, all of which no one person can be expert at. This means that to succeed in this there must be a team effort between different disciplines. To me the areas are as follows:

  • Looking after land for wildlife and human recreation
  • The economics of ownership of the land, with the necessity to raise enough income to be able to make a living and look after it
  • The impact of various different taxes on the landowner and activities carried on their land

I put myself as expert in the last category, and I dabble in the second category. I fall woefully short however in the first category, and therefore it is always a pleasure to work with knowledgeable ecologists, wildlife experts and historians. So many pleasant hours have been spent talking into the night about the potential chaos that beavers can wreak compared to the proven benefits . . .

I think as a country we are starting to get a better grip on the way to manage land for wildlife and for the environment more generally, and it looks like good progress is being made on Gove’s popular 25 year plan.

The economics of land management

On the economic side, the erosion of the basic payment as set out in the agricultural transition plan last November is a concern. It was very interesting therefore to see the Sustainable Farming Incentive in England stepping in for what was tier 1 under the original ELMS scheme, and what pleased me about this was that specific rates per hectare were given for specific activities. The farmer will not have to start with a plan, but will develop a plan along with DEFRA. I thought this was a very good approach and accordingly I telephoned all my farming clients to tell them to get within the scheme by the deadline of the 11th of April just gone. To me this looked almost like free money for the farmer.

Tier two of ELMS has been renamed to the Local Nature Recovery, and Tier three has been renamed to Landscape Recovery. Everyone advising farmers whether you be accountant, lawyer or land agent should have a good knowledge of the agricultural transition plan published in November 2020.

In addition to all this we have the potential advantage of Biodiversity Net Gain offset payments under section 106 of the Town and Country Planning Act, but soon to be under the Environment Act once it passes through Parliament, probably later this year. I am starting to see deals valued at around about £12,000 per unit of biodiversity, but the sticking point is going to be the need to enter into a 30 year agreement to maintain such biodiversity once the payment is received.

There are many other schemes and sources of money for landowners to tap into including the woodland carbon code and local water authorities. I think the best place to start here is with the local wildlife trusts and local river trusts who will know what the local priorities and incentives are.

Taxation – a few thoughts

The taxation of land has been under some doubt in the last few years, as the taxation of trusts has been under review for a long time, and there has been of uncertainty on corporation tax rates. The government announced in its ‘Command Paper’ of 23 March 2021 that ‘the responses did not indicate a desire for a comprehensive reform of trust tax at this stage. The government will keep the issues raised under review’. Typically mealymouthed but I think this is telling us that trust taxation is not going to change significantly any time soon. Therefore the choices as between personal ownership, trust ownership or sometimes corporate ownership are looking fairly settled.

To me the increase in corporation tax to 25% announced in the budget slightly changes the calculus here. Corporate ownership has been sought for a number of reasons, such as:

  • To enable profits to roll up at that low rate of corporation tax and allowing dividends to be fed out of the company at a lower rate of tax than normal income.
  • To allow research and development tax reliefs to be claimed
  • To access the extra deduction for land remediation relief.
  • The new capital allowances super deduction is looking quite interesting.

The hated Annual Tax on Enveloped Dwellings (ATED) and income tax benefit in kind rules cause problems with having land and buildings in companies, especially residential property with the farmhouse itself always causing questions. I feel that the increase in the corporation tax rate will slightly blunt the edge of the incorporation advantage.

I have always been disinclined to put the actual land and buildings in the company, as once these assets are in it is quite hard to get them back out again without creating tax charges. The goodwill of farming is held to be attached to the land itself which means that if the land is kept outside the company the goodwill is probably also outside the company which means that companies can come and go without too many problems if the land is kept outside. However, one of my nagging doubts has always been that if the goodwill is outside the company what is the company doing for tax purposes? To me therefore neither approach feels quite satisfying.

Another interesting little problem I’m starting to discuss with people is the question of business property relief for inheritance tax on the land. Payments under ELMS for looking after the land might be treated as business payments if they’re going to be received on the results basis. If the management of the land is in a company and the land is outside, the amount of such business property relief on the land value is likely to be decreased.

Trusts to me are a very good way of owning land as they allow the land’s integrity to maintained across generations. Income in a trust is subject to income tax rates, and assets can be transferred between individuals and trusts relatively easily especially where agricultural relief or business relief from IHT is available. I always suggest that trusts themselves just collect tax on behalf of the beneficiaries . Ultimately where trust distribute their income there is usually just one overall incidence of income tax at the rate of the beneficiaries. However if the trust does not distribute all of its income there is a net tax loss in the trust, but many existing trusts will be past their accumulation periods which was 21 years until this was changed in 2009 to become more flexible.

I consider ‘normal’ trusts to be fairly neutral from an IHT point of view, with a 10 year charge at 6% being close to the death rate for a person surviving to the biblically allotted threescore and 10 years – ie 6% * 7 is close to 40%. It will be interesting to see whether any changes are made to this in the future.

Capital gains tax is being reviewed and the interaction between inheritance tax and capital gains tax starting to make more sense. The granting of a tax-free probate value uplift the capital gains tax has been an anomaly for a long time and I think it’s fair for this to go. I looked at this in my article Here we go round the roundabout. We seem to be settling on 40% as being the amount that feels fair for the country to take, in terms of a higher rate of income tax, and inheritance tax or capital gains tax. The capital gains tax rates are always going to be slightly reduced for inflation either by a blanket lower rate such as we have now, or through some sort of indexation allowance.

We are still waiting to see exactly how local nature recovery and landscape recovery schemes will work, and we still don’t know exactly how net gain offset payments will work in practice. Therefore my feeling is that the fog is starting to clear, but the sun has not yet arrived.

I am going to be speaking about these matters for the Chartered Institute of Taxation in June, and am considering the acceptance of a speaker invitation at a university next year. I am therefore going to be keeping on top of this area over the next year or two so watch this space for updates.


A green future: Our 25 year plan to Improve the Environment: 2018

Agricultural transition plan: November 2020

Sustainable Farm Incentive: March 2021

Tax policies and consultations: Spring 2021

OTS Capital Gains Tax Review: Simplifying by design