The Scottish Government plan to introduce a Scottish Building Safety Levy, similar to the Building Safety Levy being introduced in England, to help raise the funding required to remedy unsafe cladding following the Grenfell tragedy.
A consultation on the proposed levy closed in November 2024 and analysis of this consultation is expected to be published in early 2025. The Scottish Government has reached agreement with the UK Government on devolution of the required power to introduce the levy in Scotland and the Scotland Act 1998 (Specification of Devolved Tax) (Building Safety) Order 2024 came into force on 19 December 2024.
This article will explain the levy (or tax) in more detail, in particular the scope of the levy and proposed exemptions, practical aspects of calculating and applying the tax, and when it is likely to be introduced.
What is the Scottish Building Safety Levy?
Following the Grenfell tragedy, many developers have remedied the unsafe cladding on buildings they were responsible for constructing. However in buildings where the developer no longer exists, this cost falls to the Scottish Government. Scottish Ministers do not want the burden for paying these costs to fall on the general taxpayer and are of the belief that these costs should fall on the sector where intervention is required i.e. the residential property development sector. The levy will therefore operate as a charge on property developers in relation to the construction of new residential buildings.
The UK Government have stated that their intention is to raise £3 billion from the levy over a 10 year period. As for Scotland, the Scottish Government are currently undertaking work to estimate the number of residential buildings with cladding that needs to be remedied, and so far, the exercise has estimated that around 1,000 high rise and 5,000 medium rise buildings, of 11 metres or over in height, and constructed or refurbished between 1 June 1992 and 1 June 2022, will fall within its Cladding Remediation Programme. The Scottish Government therefore estimate that the levy would seek to raise £30 million a year.
It has not yet been decided how long the levy will be in place for, nor is it known how long it will take to remedy the unsafe cladding. The UK Government is considering a regular review once the levy is implemented, for example every three years, to ensure the levy reflects changes in house prices. It is likely a similar approach will be taken by the Scottish Government.
Scope of the Levy
It is proposed that the levy will apply to the following types of residential developments:
- new homes built by developers for onward sale;
- purpose built accommodation e.g. student accommodation or build-to-rent; and
- redevelopment of existing buildings for the purpose of providing accommodation (irrespective of whether the existing building's current or past purpose is/was for non-residential use).
Proposed Exemptions
The following types of developments are proposed to be exempt from the tax:
- NHS Hospitals, Medical Centres and GP practices;
- Non-NHS hospitals and hospices;
- Supported housing, residential care homes, children's homes;
- Conversion or improvements to owned/occupied homes and refurbishments;
- Refuges and residential domestic abuse facilities;
- Criminal justice accommodation;
- Military barracks and other military establishments;
- Hotels;
- Monasteries, nunneries and similar establishments;
- Seminaries and other religious colleges which include accommodation;
- Drug and alcohol treatment centres;
- Temporary accommodation for homeless people; and
- School premises to be used for the sole or primary purpose of housing its students.
The Scottish Government also propose to exempt affordable housing delivered through their affordable housing supply programme from the levy, to support their commitment to delivering 110,000 affordable homes by 2032.
It is also proposed that smaller developers or developments will be exempt. The Scottish Government recognise cash flow concerns for small businesses and lack of resources to understand, plan and absorb any additional costs. Therefore, the government are considering exemptions or reliefs to protect these smaller businesses. However, there is a risk of fraud involved with this. For example, larger development sites could be parcelled up into smaller blocks, to create several smaller developments, thus avoiding the levy from being applied. The government are considering ways to mitigate this risk while protecting smaller businesses and developments.
How will the Levy be calculated?
Suggestions as to how the levy will be calculated include:
- a rate based on market value or property size;
- a flat rate per unit; or
- a rate based on number of bedrooms.
It has also been proposed that each local authority could have its own rate to reflect regional variations in land value and house prices.
Taxable Event
It is anticipated that the taxable event, when the levy will be due, will fall within the building standards process upon acceptance of the completion certificate for relevant new construction work. Therefore, the liability to tax will reflect what has actually been built, which may not be the case if the taxable event is at the beginning of the building standards process. It will also assist in mitigating cash flow issues for developers.
Potential Timescale for Introduction
Following the coming into force in December 2024 of the Order granting the requisite power on the Scottish Parliament to introduce this new Scottish tax, the Bill is expected to be brought before the Scottish Parliament in Spring 2025, and we should see the levy come into force after April 2026.
This article was written my Kate Burrows, a Trainee Solicitor in the Real Estate team.
