The Scottish Government has opened a consultation on a proposed Scottish Building Safety Levy, aiming to ensure developers fund remediation works (primarily cladding) by way of an additional charge on new residential developments.

This will be of particular interest to developers, who are facing other recent taxes and building safety measures.

Scottish Building Safety Levy

As we previously reported, in September 2023, the Scottish Government sought a new devolved tax power to introduce a Scottish Building Safety Levy (“BSL”) to the Scottish Parliament, “mirroring” the Building Safety Levy for England. A consultation followed, after which the UK and Scottish governments confirmed the UK Government was willing to proceed with the devolution of the power to introduce a Building Safety Levy in Scotland.

The Scottish Government has now opened a consultation on the proposed BSL, the purpose of which is to fund the remediation of fire and building safety issues. The consultation, which started on 23 September and runs until 18 November 2024, invites residents, developers and stakeholders to share their views. The proposed tax will apply to new residential buildings, purpose-built accommodations and redevelopments, and aims to ensure that developers contribute to fixing building safety defects in Scotland. It is estimated that a BSL could raise £30 million annually.

The Cladding Remediation Programme is a key focus for the Scottish Government and the BSL is touted as providing “vital revenues” to support its funding. Scottish Ministers have publicly committed to spending all “relevant consequential funding” received on cladding remediation. One of the aims of the BSL is to ensure financial responsibility for cladding remediation does not fall directly on homeowners or taxpayers where the developer of the affected building no longer exists.

The BSL would therefore seek to complement and accompany the two existing strands of funding for the Cladding Remediation Programme, namely: (i) direct remediation by the housebuilding sector; and (ii) Barnett consequential funding from the UK Government’s Residential Property Developer Tax (charged at 4% on the profits of developers that exceed £25 million).

Exemptions

The Scottish Government proposes to exclude the following types of development from the BSL: NHS hospitals, NHS medical centres and NHS GP practices; non-NHS hospitals and hospices; supported housing, residential care homes, children’s homes; conversions, improvements to owner/occupied homes and refurbishments; refuges and residential domestic abuse facilities for example, rape crisis centres; criminal justice accommodation; military barracks and other military establishments; hotels; monasteries, nunneries or similar establishments; seminaries and other religious colleges which include accommodation; drug and/ or alcohol treatment centres; temporary accommodation for homeless people; school premises to be used for the sole or primary purpose of housing its students (please note this exemption is not for student accommodation for university students).

Additionally, the Scottish Government says it is keen to ensure that the Affordable Housing Supply Programme is not unduly impacted by the introduction of the BSL and will seek to provide an exemption or relief to support this position. The difference between the two being an exemption would mean tax is not due in the first instance, whereas a relief means tax which would otherwise be due does not need to be paid or can be reclaimed, but needs to be claimed on a tax return, even if no tax is ultimately due. The Scottish Government is also seeking views on other potential exemptions, such as developments in rural areas, islands or those providing specialist housing like wheelchair-accessible homes.

Exclusions are also being considered for small developers or small developments, recognising that SMEs account for a third of homebuilding in rural and remote areas of Scotland. The definitions to allow this exclusion to work is a key question being asked in the consultation. In England, developments under 10 units in size are being excluded but that aligns with definitions found in English planning law. The Scottish Government seems to be steering away from granting the exemption based on development size and instead is focusing on the size of the developer.

Calculating the BSL

In terms of how the BSL would be calculated, the initial preference is using market value i.e. the sale price of a property as the primary method, with an alternative to calculate market value for properties not sold on the open market such as build-to-rent and student housing. The consultation seeks feedback on whether a market value-based tax is appropriate and what alternative valuations could be used when a sale price is unavailable.

Other calculation methods being considered include a rate based on property size (per square metre), a flat rate per unit, and a rate based on the number of bedrooms. This would be instead of a charge per unit and, importantly, owner/occupiers improving their property would not be charged.

The proposed ‘taxable event’ for the BSL is the acceptance of a completion certificate, which is a legal requirement in the building standards process.

Enforcement of the BSL

The Scottish Government suggests Revenue Scotland as the collection authority for the BSL. Revenue Scotland is the entity responsible for collecting and enforcing LBTT (Scotland’s version of Stamp Duty Land Tax) as well as other devolved taxes and it would mean that it would not fall to local authorities to enforce the levy.

In England, the consequence for non-payment of the Building Safety Levy is that the building control completion certificate will not be issued, nor the final certificate accepted.

Next steps

Powers to allow Scottish Ministers to introduce the BSL are expected to be devolved to the Scottish Parliament later this year, and we expect that the Bill covering the BSL will be introduced during the current session of the Scottish Parliament. This means that we should see it prior to April 2026.

We will continue to report on this levy as and when the Scottish Government publishes the progress of the consultation and the resultant Bill. Whilst no one would be disputing that unsafe cladding requires to be remediated, it was always going to be a thorny issue as to who should pick up the tab where the original developer is no longer available to do so. A balance will necessarily have to be struck between ensuring the taxpayer is not directly responsible for these costs and developers not being unduly penalised, which may subdue the development market. This is in no one’s interest when there is a recognised shortage of housing.

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