The government has confirmed details of the Building Safety Levy as it announced a delayed start to its implementation.
Key points
- The Levy will not now start until October 2026 (as opposed to October 2025 which had been set out in the Remediation Acceleration Plan). This delay is to enable developers to plan, and for local government and building control to prepare, for its introduction. The relevant secondary legislation is expected later this year.
- The Levy will be charged on all new residential buildings that require building control approval in England (regardless of height). Purpose built student accommodation (save where the development has fewer than 30 bed-spaces), build-to-rent schemes and retirement homes will also be within scope. However, hotels will be excluded from scope.
- Affordable housing, non-social homes built by not-for-profit-registered providers, NHS hospitals, care homes, supported housing, children's homes, domestic abuse shelters, miliary accommodation, criminal justice accommodation, and developments of fewer than 10 units will be exempt.
- Levy rates will be calculated on a “per square metre” basis with levy rates highest in those areas with the highest house prices. Floor space will be measured using Gross Internal Area and will include communal areas.
- The indicative Levy rates are published in Annex A to the government's response. The highest rates are set in London boroughs, such as Kensington and Chelsea, and Westminster.
- A 50 % levy rate will apply for developments on previously developed land (brownfield sites). For the discount to apply, 75% or more of the land within the planning permission boundary must fall within the definition of previously developed land.
- Levy rates will be reviewed at three yearly intervals.
The Levy collection process and provision of information
Developers will need to provide information in two stages as part of the building control approval process to enable the Levy to be calculated:
- At initial building control approval: information regarding planning, and the number of dwellings or bedspaces in the case of PBSA; and
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Commencement of works: further information will be required, for example, information as to whether any exemptions apply, details as to whether the development is on a brownfield site, and the GIA of the chargeable floorspace of the development, including communal areas.
Any changes made to the proposed works by increasing chargeable floor space will require submission of updated information.
The local authority will be able to make spot checks on the accuracy of the information being provided and should calculate the levy due within five weeks of submission of the information, or within 8 weeks if a spot check is taking place. An appeals process will be available.
A failure to provide Levy information will be a ground for rejection of a building control approval application.
When will the Levy be charged?
The Levy is to be paid in a single payment prior to application to building control (or the BSR) for a completion certificate/final certificate of completion.
The government rejected calls for staged building safety levy payments on phased developments stating ""We do not intend to provide for payments to be staged or phased, given the additional administrative burden this would place on the collecting authority."
Building control (including the BSR) will not be able to issue a completion certificate/final certificate if any part of the Levy is unpaid.
Comment
The Levy will operate alongside existing financial obligations and charges, including Section 106 payment obligations, as well as Local and Mayoral Community Infrastructure Levy (CIL) which fund local infrastructure and community projects. The interaction between these payments and levies, as well as the existing Residential Property Developer Tax, could influence developer decisions going forward, particularly in light of the cumulative effect this may have on project viability. As such, the introduction of the Levy may result in developers seeking to lower their exposure at other parts of the development lifecycle, and particularly at the planning stages. Such developers may look to do this in the following ways.
Design considerations – Developers will likely be reconsidering the size and scale of proposals in order to reduce chargeable floorspace for both the Levy and CIL purposes. One of the challenges however will be balancing the provision of a viable scheme, which is nevertheless in line with the nationally described space standard as well as other planning and building safety standards. As such, developers may instead look at ways to reduce communal rather than private unit areas. This may be easier for some developers more than others, noting consultation responses expressed concerns about the potentially disproportionate impact the Levy will have on developments with a higher proportion of communal areas, such as student accommodation blocks.
Mixed use development – the Levy applies to residential buildings only, and non-residential uses are not subject to the Levy. Developers may therefore wish to consider the introduction of other uses as part of their proposals in order to mitigate Levy liability. CIL rates also often differ between residential and non-residential uses, and so developers may look to shift more GIA into lower rate uses to reduce CIL liability in parallel.
Exempt development – Developers are also likely to look at ways to benefit from the Levy exemptions. The affordable housing exemption could push developers to consider providing entirely affordable schemes, and the small site exemption could prompt some developers to consider reducing the total number of units being proposed, particularly on small and medium-sized schemes. These exemptions also carry across to communal areas where such areas are shared between chargeable and exempt areas, with the Levy only being chargeable on a proportionate part of the communal area equivalent to the proportion of the chargeable area. This may push developers to consider providing communal areas by reference to the exempted areas of a scheme, such as providing lobbies which give access to both chargeable market dwellings and exempt affordable dwellings, in order to maximise the benefit of the exemptions.
Refurbishment first – The Levy applies to new residential buildings. Refurbishments are likely to be excluded from Levy liability, so it may be that some developers are prompted to consider refurbishment of existing housing stock as part of their plans, rather than focussing on the provision of entirely new housing schemes, in order to entirely avoid triggering the Levy.
Minimising S106 planning obligations – Developers may seek to minimise the financial exposure in their planning obligations package, and so they will likely scrutinise and negotiate the proposed financial obligations much more-so than before, particularly with reference to Regulation 122 of the Community Infrastructure Levy Regulations 2010 (as amended) which requires obligations to be necessary to make the development acceptable in planning terms, and to be directly related, and fairly and reasonably related in scale and kind to the development. Developers may also consider negotiating on-site infrastructure delivery in lieu of financial obligations where that would be preferable. Overall, this may increase the time it takes to negotiate and agree a development's planning obligations package, which developers and Local Authorities will know is already an involved and often time-consuming process.
Maximising CIL reliefs – Developers should consider whether there are any applicable CIL reliefs, the availability of which is often overlooked. For example, social housing relief in particular can, similarly to the Levy affordable housing exemption, prompt developers to consider providing a higher proportion of affordable units. Separately, some local authorities offer exceptional circumstances relief, which can be claimed in circumstances where there are viability concerns, and so developers should not underestimate the importance of a robust viability assessment as part of their development proposals.
Overall, developers will need to get ready for the Levy now. Despite concerns that the imposition of the Levy will impact the viability of some projects especially considering the cumulative effect of other charges, levies and taxes, together with concerns about the resourcing of local authorities to administer the Levy, the government is determined to press ahead with the introduction of the Levy.
