Tax on unsold new homes threatens government targets
Council tax on unoccupied, unfurnished, and unsold homes puts house building volumes at risk, it’s claimed.
A new report by the Home Builders Federation (HBF) warns inconsistencies in the application of council tax is threatening cashflow and development viability, especially for small and medium sized house builders.
The report reveals almost half (45%) of local authorities are charging developers full council tax on newly built homes awaiting sale or occupation.
It says council tax is frequently levied on developers before a home has been sold or occupied in some instances – even when homes are completely uninhabitable, lacking utilities, fixtures, or fittings.
The HBF says this is “ignoring the reality of bringing new homes to market and placing additional pressure on businesses already managing high upfront costs.”
Delays in utility connections, labour availability or materials shortages, often entirely outside a developer’s control, can mean that properties deemed “substantially complete” for council tax purposes remain some distance from being ready for sale or occupation.
Developers can therefore face full council tax charges on homes that are not yet capable of being lived in and therefore impose no direct cost to the council.
SME home builders are particularly affected with 88% reporting council tax charges are affecting their cash flow and, as a result, threatening their ability to deliver future sites.
For smaller builders operating with tighter margins and limited access to finance, premature council tax bills can determine whether a site remains viable to build and whether future development can be brought forward.
The HBF comments:
“Recent years have seen a massive increase in the taxes and policy costs levied on new build development, making many potential sites unviable to build out.
“At the same time developers are facing huge increases in material and labour costs and supressed demand due to a weak market and lack of affordable mortgage lending.
While council tax is an important source of funding for local services, applying it prematurely to newly built homes waiting to be sold is unfair and counterproductive and is now preventing the delivery of new homes, at a time when central government is pushing the industry to increase output.”
The 2025/26 tax year saw an 154% increase in developers appealing council tax bills compared with 2022–23.
HBF wants government to:
- Introduce a clear and consistent national framework for the application of council tax to newly built homes, where properties are only judged substantially complete at the point a building control completion certificate is issued;
- Reinstate a time-limited Class C council tax exemption for newly built dwellings that are unoccupied and substantially unfurnished. A 12-month exemption from the date of completion or entry into the valuation list would provide a fair and consistent national approach that recognises the time required to bring new homes into occupation;
- Exempt new build homes from the Empty Homes Premium and Second Homes Premium for two years from the date of completion or entry into the council tax valuation list.
Neil Jefferson, Chief Executive of the Home Builders Federation, says:
“Government attempts to increase housing supply are being thwarted by huge increases in taxes and policy costs that are making many sites unviable while a lack of affordable mortgage continues to supress demand.
“Charging council tax on incomplete new build homes before they are sold, occupied or, in some cases, fully ready to live in places further pressure on cash flow and can make the difference between a site being viable or not.
“These properties are not long-term empty homes, second homes or homes deliberately withheld from occupation. They are new homes being brought to market in challenging circumstances, often by the smaller businesses government has repeatedly said it wants to support.
“We are urging government to introduce a clearer, fairer and more consistent national approach and to remove this damaging additional tax on development that is acting as yet another barrier to SME builders staying in sector.”
Kindly shared by EstateAgentTODAY Image courtesy of Adobe
