In the wake of the Grenfell Tower Inquiry, the UK Government has taken significant steps to improve building safety standards, with a particular focus on ensuring that developers play their part in funding necessary remediation.

One key measure is the introduction of the Building Safety Levy in England, while the Scottish Government, holding devolved powers in this area, is developing an equivalent scheme suited to Scotland’s housing market and regulatory environment.

England: Building Safety Levy

The Building Safety Levy in England was introduced by the Building Safety Act 2022 and is expected to come into effect in autumn 2026. It is designed to raise approximately £3.4 billion over a ten-year period to help finance the remediation of unsafe residential buildings. 

The levy will apply to most new residential developments in England that require building control approval, including build-to-rent properties, purpose-built student accommodation and private retirement housing. However, exemptions will apply to developments such as affordable housing, NHS facilities, care homes and supported housing. 

The levy is to be calculated on a per square metre basis, using the gross internal area (GIA) of the development with rates varying by local authority to reflect regional land values and property prices. Developers will be required to self-assess the levy amount and pay it to the relevant local authority before a completion certificate can be issued. Failure to pay will result in the withholding of the completion certificate, preventing occupation of the building(s). 

Scotland: Proposed Building Safety Levy

With devolved powers in place, the Scottish Government plans to introduce its own Building Safety Levy to fund the Cladding Remediation Programme, addressing unsafe cladding on buildings across Scotland, which is anticipated to raise £30 million a year. A bill is expected to be introduced in the Scottish Parliament in 2025, with the levy projected to come into effect after April 2026.

Like England, the levy will apply to new homes built by developers for sale, new purpose-built accommodation such as student flats and build-to-rent properties, and redevelopment projects that see existing buildings converted into residential accommodation. Exemptions are proposed for affordable housing developments and certain types of community facilities. Given the high proportion of SMEs operating in the Scottish residential market, protective measures are being considered to exempt smaller developers from the levy.

The method for calculating the levy is still under consideration. The Scottish Government has proposed calculating the Building Safety Levy as a proportion of the market value, which is considered to be reflective of regional disparities in house prices, but other suggestions include a flat rate per unit and a rate based on number of bedrooms. It is expected to be a self-assessed tax, with developers submitting returns to Revenue Scotland. Payment would be linked to delivery of an acceptance of completion certificate.

Planning ahead: Navigating uncertainty in development agreements

With the introduction of the levy still pending, a key question for developers is how to future-proof purchase contracts and option agreements to account for this potential liability. 

A number of elements make this challenging:

• the method for calculation is not yet confirmed;
• the period of the levy is intended to be temporary, but how temporary?;
• the date for introduction of the levy is not known, and 
• the trigger for payment is expected to be at completion of units (rather than when any site is acquired by the developer) and so values may change.
  
  

There are a number of potential solutions and the preferred arrangement will in some respects depend on the circumstances and the parties, but this is likely to be a feature of discussions with landowners to agree how best to address the need for this abnormal cost to be factored into residual land appraisals, and any reconciliation that may be required between what is forecast when a site is acquired and the actual levy amount ultimately paid. 

Our housebuilding team is actively advising clients on this issue, while our building safety group is closely monitoring the latest building safety developments in Scotland. If you’d like to explore how to best prepare for the levy’s introduction or catch up on building safety updates, get in touch and we would be happy to discuss further. 

For further reading, see our previous blog on the Scottish Government Building Safety Levy consultation which closed in November 2024, the outcome of which is awaited, and other insights here.

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