Scottish Building Safety Levy: technical consultation

2. Floorspace methodology

2.1 Definition of floorspace

The charge to the SBSL is calculated by taking the applicable rate of the levy and multiplying this rate by the floorspace area (in square meters) of the new residential unit for which there has been a building control event. As a self-assessed tax, taxpayers for the SBSL will be required to calculate how much they owe by multiplying the floorspace area of the unit by the rate set out in our indicative rates publication.

The UK Government’s England-only levy calculates the floorspace of an eligible development by using gross internal area (GIA), as set out in the RICS Code of Measuring Practice 6th Edition. The UK Government states that GIA has been chosen as GIA is a widely used and recognised method of measuring floorspace, including for the England-only Community Infrastructure Levy.

The UK Government consulted on the use of GIA as the calculation method for the England-only Levy.^[2] The majority of respondents to the UK Government’s consultation agreed with the proposal that the floorspace of the development should be measured using GIA. Respondents noted that GIA is a widely used and understood measure in the construction industry, and that the Royal Institution of Chartered Surveyors’ (RICS) guidance is a well-established framework which can be used for reference. Some respondents also felt that GIA provided a suitable proxy for the value of the property.

The Scottish Government recognises that many developers operate on both sides of the border, and therefore utilising the same method of calculating floorspace for the SBSL as the England-only Levy would provide a degree of continuity for those developers. In addition, the RICS code of practice is referenced and used in both Scotland and England, therefore developers on both sides of the border will be familiar with its terminology and definitions. Basing the floorspace on internal floor area also aligns with the methodology used for measurements required under the Scottish building standards regulations. The Scottish Government is therefore proposing that the SBSL charge for a new residential unit is to be charged based on the floorspace as measured using GIA.

Question 1: Do you agree that floorspace should be calculated using Gross Internal Area (GIA)?

2.2 Exclusion of communal areas of a building

Residential development subject to the SBSL can be constructed through various types of building. This includes stand-alone dwellings, buildings containing more than one dwelling connected by common parts, and buildings containing both dwellings and non-dwelling communal areas for use by those living in the building.

For the purposes of the SBSL, the Scottish Government proposes that communal areas of a building (or part of a building) are considered to comprise of the following:

• Stairwells, elevators, corridors, entrance halls, atria and any other room or space which provides access to and from one or more dwellings and is not considered part of the dwelling itself
• Parts of a building that contain facilities which are used for the better enjoyment of those living in dwellings within the same building and do not function as dwellings themselves.

For purpose-built student accommodation (PBSA), any flatted student accommodation and cluster flats that are akin to self-contained flats would be deemed as residential units (including traditional "halls of residence" models). Common areas within these units, such as shared sanitary and cooking facilities would form part of the taxable space, akin to how kitchens, bathrooms and living rooms in a flat would be taxable. Any other space outwith these units would be classed as a communal area (such as stairwells, lifts and areas which are open to residents of the building as a whole) and would be excluded from the taxable area. Examples of spaces that would fall under this definition and exempt from the SBSL would be gyms, study hubs and foyers which serve the residents of the building as a whole rather than individual clusters.

Under the UK Government’s England-only levy, communal areas will be subject to the levy charge. The UK Government states this is because they are for the use or benefit of occupants and thus contribute to the value of the building. Where communal space is shared between chargeable and exempt areas (e.g. a lobby which gives access to exempt affordable dwellings and chargeable dwellings for market sale), a proportion of that communal space which is equivalent to the proportion of exempt areas within the building will also be exempt from the levy charge.

Scottish Government’s approach to charge the SBSL based on per-unit rather than per-development provides the option of diverging from the UK Government approach on communal space. The Scottish Government is currently proposing to exempt the common areas listed above from the SBSL, meaning that the floorspace covered by these areas would not be chargeable.

The impact of exempting communal areas would impact those developments which contain such areas – such as apartment buildings with stairwells and facilities to serve the dwellings contained within. These developments would pay no levy on any communal area floorspace, meaning the greater the proportion of communal area the higher proportion of the building exempt from the SBSL.

Other types of development, such as standalone houses, would likely see no impact. The effect of which would be for those developments with more communal areas would have a proportionately lower tax burden than those developments with low or no communal areas.

While the total cost of the SBSL per-unit is anticipated to be low, it is possible that exempting common areas could provide a marginal incentive to high-density development. This would support policy outcomes in Scotland’s National Planning Framework 4 (NPF4) to facilitate compact urban growth and the use of land in towns and cities sustainably.

Development types which traditionally contain greater amounts of communal areas, such as build to rent (BTR) and PBSA across developments. These types of development often contain common parts for use by those living in the building, such as common rooms, gyms and laundry service areas. BTR is seen as a key priority area to tackling the housing emergency in Scotland, and favourable tax treatment could protect and promote investment in this sector, supporting our aims in the Housing Emergency Action Plan.

Additionally, it is possible that exempting communal areas could encourage developers to allocate more area of a building to these areas in order to lessen the charge for the SBSL. This could have a knock-on impact of either reducing the number of dwellings in the building, or the size of the dwellings. As the average per-square metre rate is low, the cost-benefit of providing larger communal areas would be similarly low.

Question 2: Do you agree that communal areas of a building should be excluded from being charged?