The Building Safety Act 2022 confers powers on the Secretary of State to impose a new levy, payable as part of the building control process, to recoup expenditure the government has (or will) incur in providing financial assistance for the remediation of building safety defects.

In November 2022, the government launched a consultation on the proposed levy – the results of that consultation, together with the government's response, were released in January 2024 alongside the release of a further consultation which closes on 20 February 2024.

Here we reflect on what we currently know about the government's proposals for the new Building Safety Levy.

Policy background

Following the 2017 Grenfell fire tragedy, the government stepped in to offer financial assistance to fund certain building safety remediation work. To ensure that those costs ultimately did not fall on the taxpayer, legislative provision was made for the introduction of the Building Safety Levy (see below).

As explained in the government's response to the 2022 consultation: "the government's building safety approach is focused on protecting leaseholders. In our view, it is fair that the industry that caused the cladding problem have profited from government support and gain from the restoration of confidence in the housing market should contribute to remedying the problems they have caused".

The levy sits alongside the Residential Property Developers' Tax introduced in 2022 (which applies to UK-based organisations with profits of more than £25 million) and Developer Remediation Contracts.

Legislative background

Powers to create the new Building Safety Levy were conferred by Section 58 of the Building Safety Act 2022 (inserting a new section 105C into the Building Act 1984).

Details of the levy are to be set out in secondary legislation.

Geographical extent

The Building Safety Levy will apply in England only. For details of similar proposals in Scotland, see Dentons – The Scottish Building Safety Levy – a new developer tax to plug the safety gap.

Scope

While originally intended to only apply to higher-risk buildings, the scope of the levy as set out in the Building Safety Act 2022 covers "all relevant buildings" being buildings in England comprising or containing:

• one or more dwellings; or
• other accommodation (which includes temporary accommodation such as a hotel or hospital).

While several exemptions are proposed (see below), the following are specifically envisaged as falling within scope:

• conversions/change of use where buildings are being converted to residential use;
• private older people's/retirement housing;
• build-to-rent developments; and
• purpose-built student accommodation.

The levy will be payable by developers irrespective of where they are based or their profit margins. 

Levy target

The estimated overall levy target is £3 billion pounds to be raised over 10 years or more. The target and duration are to be kept under review. The current intention is to review in the second full year of levy operation and thereafter on a three-yearly basis. This is to enable the government to adjust the levy in light of data on revenues raised and updated forecasts.

Calculation of the levy

At present, we do not have any figures for the levy, only details of the principles on which it is to be calculated.

The levy is to be charged on a per square metre basis to fairly reflect the difference in value between different sizes of new development. The latest consultation seeks views on how size is calculated, with the suggestion being Gross Internal Area (GIA) measured in accordance with the Royal Institute of Chartered Surveyors.

Rather than having a blanket rate per square metre across England, the proposal is that each local authority is to have its own rate, set centrally, so that it better reflects local land values and house prices. The methodology for calculating the levy rates forms a central part of the latest consultation.

"Previously developed sites" are to be charged at a rate that is 50% of the greenfield rate in recognition of the higher costs of developing a brownfield site and the greater risk that these projects will become unviable. The latest consultation explains that a previously developed site will be one "where the area within the planning permission redline boundary consists of more than 50% previously developed land types". It is anticipated that these levy land type classifications will be similar to the urban habitat types used for Biodiversity Net Gain.

Collection agency

The intention is that local authorities will act as the relevant collection agency. The government will fund initial set-up costs and thereafter local authorities will be able to recoup their ongoing costs in administering the levy from the levy receipts. The remaining balance of levy payments is to be made to the DLUHC on a quarterly basis.

The government does not consider it appropriate for either the Building Safety Regulator (BSR) or Registered Building Control Approvers (RBCAs) to act as collection agents. However, both the BSR and RBCAs will have a role in passing on information to local authorities to enable the levy collection process.

Payment process

The details of how the levy will fit into the building control process form part of the latest consultation.

The suggestion is that specified information (such as floor areas and whether the development is on a "previously developed site") will need to be included as part of any application for building control approval (including submission of an initial notice). Failure to provide that information will result in the application being rejected. The collecting authority will have five weeks from submission of the levy information by the client to issue a notice of levy liability for the levy amount or confirm that the levy is not applicable and no payment is due.

If there is liability, the levy will become payable after works have commenced. Despite early suggestions of introducing a two-step payment process, the government's response to the first consultation confirms that they now favour a single payment. Helpfully, the intention is to give developers some flexibility to decide when that payment is made subject only to the requirement that the payment must be paid ahead of a completion certificate being issued or a final certificate being accepted for the development.

If there are changes to the works after commencement, then further steps will need to be taken to provide updated levy information – the latest consultation considers what those steps should be.

Exemptions

It is currently proposed that the following be exempt from the levy:

• developments of fewer than 10 units (save that for purpose-built student housing the exemption will be for those with fewer than 30 bedspaces);
• affordable housing;
• non-social homes built by not-for-profit Registered Providers;
• NHS hospitals, NHS medical homes, and NHS GP practices;
• supported housing other than private tenure supported housing;
• children's homes;
• domestic abuse facilities;
• criminal justice accommodation;
• armed forces accommodation;
• care homes and nursing homes; and
• improvements to owner-occupied homes and refurbishments.

The latest consultation seeks views on further possible exclusions such as hotels, non-NHS hospitals, and temporary accommodation for the homeless.

Transitional provisions

The suggestion is that developments which have already begun the building control process (i.e. submitted a full plans application, initial notice, or gateway 2 application) before the launch date will not be subject to the levy charge. There is to be no grace period after the levy launch date.

Sanctions for non-payment

The proposal is that the primary sanction for non-payment of the levy will be a withholding or rejection of final building control certification on a development.

Disputes

The latest consultation proposes that clients should have 28 days from a decision to request an independent review by the local authority. The local authority would then have 28 days (or 14 in the case of a decision to withhold a completion certificate) to conclude that review. If still dissatisfied, the client would have 21 days from the review decision to mount a challenge at the First Tier Tribunal on the grounds that the decision was erroneous in fact, or wrong in law.

Commencement

There is currently no indication as to when the Building Safety Levy is likely to be launched.

Responses

Those with strong views on the design and implementation of the Building Safety Levy, including the methodology for levy calculation, the collection process, managing disputes and appeals, and further exemptions should respond to the further consultation before 20 February 2024.