First announced in February, the proposed new "Gateway 2" Building Safety Levy is part of a package of measures designed to deal with the funding and removal of unsafe cladding in high-rise residential buildings.
The Government is consulting on the design of the Building Safety Levy, which will sit alongside the new UK residential property developer tax ("RPDT") currently due to come into force in April 2022.
Given the additional costs imposed by both the Levy and the RRDT, the Government is mindful that a balance is required between the need to raise revenue to support cladding remediation and the need to minimise the impact on housing supply and regeneration. The potential overlap between the Building Safety Levy and the RPDT is likely to generate considerable discussion before plans for the Building Safety Levy are finalised.
What is the Building Safety Levy?
The power to create the Building Safety Levy, described as a "levy on applications from building control approval in respect of higher-risk buildings" is set out in the Building Safety Bill which is making its way through Parliament. Royal Assent is not expected until 2022 with implementation of the Bill following 12-18 months later meaning that the Building Safety Levy is not likely to come into force until 2023.
Gateway Process
The Gateway process to be introduced for higher-risk buildings in England is one of the key elements of the Building Safety Bill designed to ensure that building safety risks are considered at the planning, construction and pre-occupation stage of a building. The Gateway process will apply to new high-rise residential buildings, care homes and hospitals which are 18 metres or more in height (or at least 7 storeys) in England which will be subject to building control approval by the Building Safety Regulator. For the purposes of the Building Safety Levy, Gateway 2 is most relevant.
The three Gateways proposed under the bill are as follows:
- Gateway 1 - the planning application stage
- Gateway 2 - the building control application for Building Safety Regulator approval prior to construction
- Gateway 3 -the building control application for Building Safety Regulator approval prior to occupation of a building.
Changes to the planning application process to include a fire statement at Gateway 1 have now come into effect as from 1 August 2021.
Details around Gateway 2 are expected to be published during the passage of the Building Safety Bill.
What developments will be caught by the Building Safety Levy?
The proposed Building Safety Levy will apply to developments in England which require building control approval from the Building Safety Regulator under the Building Safety Bill, although there are a number of exclusions. The proposed exclusions are:
- Affordable housing - so as to avoid disincentivising the supply of affordable housing
- Hospitals – so as to avoid adding costs to the health sector
- Refurbishments (rather than conversions) – to ensure that refurbishments are not delayed.
There will also be some protections to enable SME's to pay the Levy in instalments under agreed payment schedules should that be required.
When will the Levy be charged?
The levy will be charged at the Gateway 2 application stage for building control approval from the Building Safety Regulator to start construction.
Should payment by instalments of the Building Safety Levy be agreed, it is likely that Gateway 3 consent would not be achieved without payment of any outstanding Building Safety Levy payments.
How will Levy be calculated?
The intention is that the calculation should be transparent, simple and objective and two alternatives are suggested:
- a charge per square metre of the entire floor area of the development
- a fee per residential unit
adjusted to reflect disparities in property value based for example on geographical location.
The actual rate will be set out in further secondary legislation and may be varied over time.
A self-assessment system for the Building Safety Levy is proposed and developers will need to keep records and evidence for review and verification by the collection authority.
It remains to be seen whether the Levy will be a permanent feature or whether it will be a temporary measure. Wording in the Consultation that the Building Safety Levy will create additional costs "for the period that the levy is in place" suggests that the Building Safely Levy may be time limited, but no further detail is provided about this.
Interaction with other proposed charges
The Consultation recognises that the Building Safety Levy and the RPDT target are different but that there is potential for overlap since some developers may pay both, while others may only pay one of them. There is also some discussion around the interaction of the Building Safety Safety Levy with the proposed Infrastructure Levy which was set out as part of the Planning for the Future White Paper in August 2020. It is clear from the Consultation that the Building Safety Levy would come into force first given the need for remediation of historical building safety defects, but the cumulative impact on development viability of both levies and other prospective costs, such as fees to the Building Safety Regulator and the RPDT, on the sector will be considered when setting the rate of the Building Safety Levy.
Who will pay the levy?
It is intended that the client – the person or organisation for whom a construction project is carried out - will be responsible for payment of the levy; or be responsible for ensuring that the Levy is paid. This reflects the Government's view that the housing sector should make a fair contribution to the costs of remediation of the unsafe cladding.
Should the client change with levy payments outstanding, the new client would need to take on responsibility for those payments.
What sanctions are there if the Levy is not paid?
The principal sanction would include withholding of approval at Gateway 2 which would mean that construction could not start; but a range of incentives are being considered in the consultation, such fines and surcharges if mistakes are made in the calculation of the Building Safety Levy, or there are missed payments in any agreed payment schedules.
The Consultation is expected to close on 15 October 2021.
