Scottish Building Safety Levy: indicative rates

Summary of impacts

At £30 million per annum, the Levy represents around just 0.8% of the value of the chargeable new build housing market.^[2] This is consistent with fluctuations in house prices and other input prices that developers are accustomed to working with. For example, over the period from 2004 to 2025, annual new build house price growth has averaged 3.8%,^[3] which is significantly greater than the one-off uplift in additional costs associated with the Levy.

The Business and Regulatory Impact Assessment for the SBSL set out that the Scottish Government’s assessment of the long-term impact of the SBSL is that developers are likely to seek to pass on new costs associated with development through the price they pay for the land. This reflects evidence from the Competitions and Markets Authority and the Scottish Land Commission on the transmissibility of new costs associated with residential property development. It is also consistent with the UK Government’s view on the impact of its Building Safety Levy.

Potential impacts of the Levy are mitigated by exemptions for social and affordable housing and homes built on islands, and by the 29-unit Levy Free Allowance, which together remove around half of units from scope.

As a result, the responsibility for paying the Levy falls disproportionately on larger-scale developments, with small and medium-sized developers and lower volume sites, which are more common in rural areas, experiencing limited or no liability.

The Levy Free Allowance removes from the scope of the Levy an estimated 85% of developers, meaning smaller developers will have no requirement to interact with or pay the Levy. Those building over 29 units also benefit from the Allowance – a medium-sized developer building 50 units per year (after other exemptions have been applied) would see the majority of their units removed from charge through the application of the Allowance.

These impacts feed through to rural housebuilding as lower-volume developments, often carried out by SMEs, are more prevalent in rural markets. It is estimated that on average around 55% of units in remote areas^[4] are built by developers who build less than 29 units a year and so will be completely exempt from the Levy. To the extent that developers who sell more than 29 units use their Allowance in remote areas, the share of exempt units in remote areas could be even higher, up to a maximum of around 89%.

A similar pattern is evident in more rural local authorities. It is estimated that on average around 75% of units in the Scottish Borders, 47% in Argyll and Bute, and 44% in Dumfries and Galloway are from developers who build less than 29 units a year. The benefits of the Allowance are also likely to be felt in less rural local authorities where developments tend to be smaller-scale, such as Inverclyde (49%) and Clackmannanshire (48%)

Rates differ between local authority areas in order to reflect differences in average house prices and average sizes which reduces the risk of disproportionate effects in lower-value markets.

Rates for greenfield development range between £23.17 in Dumfries and Galloway to £48.46 in City of Edinburgh. This is broadly similar to the approach taken for rate setting for the UK Building Safety Levy. However, broader disparities in average house prices in England means the UK Levy has a greater range of rates, from £12.70 County Durham to £100.35 in Kensington and Chelsea.

Any comparison of differences between rates in Scotland and England must take into account differences in average property prices, developer characteristics, and differences in the design of the levies. For example, the decision to set the Levy Free Allowance at 29 removes around 14% more units from the tax base (after exemptions) relative to following the UK Government approach of exempting developments consisting of 9 or fewer units. While this has a positive impact on SMEs and rural housebuilding, it leaves the tax burden to be distributed across a smaller number of units.

While the highest rates are generally found in urban areas, many of these areas have substantial proportions of development taking place on previously developed land. For example, around three-quarters of units in Glasgow City and three-fifths of units in Edinburgh City are estimated to be located on brownfield land. As such, the majority of units developed in these areas will be liable to Levy at a rate which reflects the application of the brownfield relief. In contrast, less urban and more rural authorities are characterised by a significantly higher proportion of greenfield development, meaning there is more limited access to the brownfield discount.

The Scottish Government will produce triennial reports on the operation of the Levy, in line with the strengthened reporting requirements it added to the Act during its passage through the Scottish Parliament. The Scottish Government has also committed with the UK Government to monitor and evaluate the potential impacts of the respective levies.