Building Safety Levy: a new era for construction in England

What is the Building Safety Levy?

The Building Safety Levy, a pivotal component of the UK government’s remediation acceleration plan, is set to reshape the landscape of the construction industry in England. This new tax aims to raise £3 billion over the next decade. As the industry braces for this change, understanding the levy’s scope and implications is crucial for developers and stakeholders alike.

Who will be affected?

The levy will apply to all new "major residential developments", regardless of height, defined as being at least 10 new dwellings or 30 new bedspaces for purpose-built student accommodation. It will include retirement housing and build-to-rent developments. However, the government does not want to penalise or prevent the development of important community facilities and therefore exemptions exist for affordable housing, homes built for registered providers, care homes, NHS hospitals, supported housing, and developments of fewer than ten units.

How much is the levy?

The levy will be calculated based on the gross internal area, with rates varying by local authority. Notably, there is a 50% reduction for developments on previously developed land. Local authorities will be responsible for collecting the levy, even if they are not overseeing the building control for the development. Revenue generated will be returned to central government quarterly.

Industry reactions and challenges

Draft regulations are subject to Parliamentary approval before the levy comes into effect on 1 October 2026. Initially slated for implementation in autumn 2025, the start date has been postponed to autumn 2026, allowing additional time for developers to incorporate the levy into their financial planning and for local government and the Building Safety Regulator to prepare for the levy.

Some argue that the introduction of the levy presents an additional financial burden on developers, many of whom are already investing in building remediation. The Home Builders Federation has expressed concerns that the levy is an unfair, anti-development tax that will increase new home costs, threaten housing supply, and burden developers who were not responsible for past safety issues.

What does this mean for funders?

Funders will inevitably be concerned about the financial implications of the Building Safety Levy for a number of reasons:

• Cost certainty and project viability: The levy has potential to impact on a wide range of developments. Rates at which the levy will be paid will vary between local authorities, and there is a significant range from £12 to £100 per square metre of chargeable floorspace. Rates will not be indexed annually but reviewed every three years through new regulations, meaning there may be unpredictable changes over time rather than gradual adjustments. Developers will need to factor in the cost of both the levy and providing the additional information for their projects.
• Implementation risks: Full payment of the levy is a pre-condition for the issue of the final building control certificate. This means that non-payment may result in the withholding of this certificate and therefore directly affect the occupation, practical completion, refinancing, or exit strategies that funders rely on for repayment or security. There are also concerns that local authorities may not be sufficiently resourced or prepared, despite promised government funding for this purpose. Any inefficiency or delay in the collection process could result in material delays to project timelines. This will impact drawdown schedules, practical completion, and the running of loan covenants.
• Exemptions and scope ambiguity: While there are exemptions (including affordable housing, homes for registered providers, care homes, NHS hospitals, supported housing, hotels and developments of fewer than 10 units), the practical application of these exemptions could create scope uncertainties, which funders must carefully review when considering borrowers' proposals.
• Ongoing regulatory uncertainty: Some details remain outstanding and will be set out only in forthcoming government guidance. Until published, funders face continuing uncertainty around procedural requirements, compliance expectations, and possible further changes to rates or the collection process.
• Regional market and competitiveness implications: As levy rates will be set at local authority level and vary widely, developers and therefore funders may preferentially target or avoid certain regions, potentially distorting development viability and market dynamics across different areas. This introduces additional variables into asset selection, stress-testing, and forward funding assessments.