Ahead of the forthcoming March Budget Statement, the Federation of Master Builders (FMB) has called on the Government to curb the growing practice of local authorities charging council tax on incomplete new homes, arguing that it was detracting from the SME sector’s ability to address the housing crisis.

The Local Government Association (LGA) issued a rebuttal of sorts, yet evidence from our own members, as well as reports from regional newspapers, suggests that the issue is a lot more widespread than the LGA may realise.

Across the country, we’ve heard complaints from house builders that council tax is being charged on properties that are nowhere near anyone’s definition of being completed. There have been reports of house builders being charged council tax on homes that lacked even the very basics, such as plastered walls or concreted floors.

One local house builder compared the practice to charging road tax on a car that hasn’t even had its engine installed. Road tax is similar to council tax in that it is charged to fund certain services – if those services aren’t being used, there’s no valid reason for charging it. Incomplete homes don’t have occupants and therefore don’t require such things as access to social services or rubbish collection, and therefore there is no justification for charging taxes to fund those services.

The ability to levy Council Tax on existing empty properties was introduced by the last Government to incentivise property owners to bring empty homes back into use - a reasonable policy that few house builders would contest. However, it opened up the possibility of councils charging tax on empty new homes as well.

Consequently, an ever more tenuous definition of ‘complete’ has emerged, as councils capitalise on the loose definition of empty to open up a new revenue stream. We understand that local authorities have had to endure eye-watering budget, however, that does not excuse this practise which only serves to fuel the housing crisis by increasing risk to small house builders.

The LGA offered the response that a ‘robust’ appeals system is in place if a developer perceived the charges to be unwarranted, but – to continue the car analogy - the process appears to be perfunctory in much the same way as appealing a parking ticket.

The impact of this practice extends beyond offending a basic principle of fairness. Levying what is, in effect, yet another development tax acts as a further deterrent to SME developers already operating on thin margins. It creates uncertainty and further raises risk for local developers, dangers they can ill afford.

Moreover, prematurely imposing council tax discourages house builders from completing their developments until they’ve agreed sales, thereby considerably slowing down the delivery of completed new homes onto the market. Anything that needlessly slows down the delivery of new homes in the midst of a major housing shortage must be tackled.

What house builders really need is an agreed definition of new home completion for the purposes of charging Council Tax, and one which ties this point much more closely to the point of habitability. This would encourage more actual completions, helping local authorities build additional new homes via small local builders.

 

By Brian Berry
Chief Executive
Federation of Master Builders