Levelling-Up and Regeneration Bill committee stage briefing

The Levelling-Up and Regeneration Bill concluded its House of Commons committee stage last month.

While most of this wide-ranging Bill is not tax-related, it does contain three measures potentially of interest to tax advisers:

• The introduction of an infrastructure levy to be implemented by English local authorities, intended to replace the Community Infrastructure Levy and most developer contributions to local infrastructure via ‘section 106 agreements’
• Change to council tax to permit local authorities to impose an empty homes premium after one year instead of two, and to charge up to 200 per cent council tax on furnished holiday homes
• Requirements to make available certain information regarding land ownership, to increase the transparency of ownership of, and interests held in, land

For a briefing on all the Bill’s contents, we recommend this briefing from the House of Commons Library.

Changes to council tax (Part 2 – clauses 72-73)

These clauses were debated during the Bill’s 12^th committee sitting, held on 12 July.

Introducing clause 72, housing minister Marcus Jones began by explaining why the Government allows local authorities to charge extra council tax on properties left empty: “The longer a property is empty, the more likely it is to deteriorate and attract antisocial behaviour such as vandalism or squatting, which can reduce the value of properties and drive away the local communities.”

He explained that councils can increase the premium depending on the length of time the property has been empty: “Councils now have the power to charge up to four times the amount of the standard council tax bill when a home has been empty for more than 10 years. Nearly every council already makes use of the empty homes premium.”  But why should councils have to wait two years before they get the power to levy this premium? Through clause 72, the Government “will give councils the power to apply the 100% premium on properties left empty after one year, rather than the current two years.”

Labour spokesperson Alex Norris said his party supported clause 72. However, “we feel that it is a missed opportunity and that even the Bill will not give local authorities sufficient tools to get a grip of the situation and protect their local communities. We should have gone further with a power to levy a greater empty homes premium and to close the loophole through which properties are pushed into the business rates category—or slid into it—to avoid council tax.” He suggested the UK Government should look to the Welsh Government for inspiration.

Liberal Democrat spokesperson Tim Farron said that in his local authority of South Lakeland, there are 900-1,000 officially empty properties at any given time, but between seven and 10 times as many properties not lived in, but classified as second homes. He concluded: “empty homes are important, but not nearly as important as tackling the excessive second home ownership problem in communities such as the lakes and the dales.”

Clause 73 creates a council tax ‘second homes premium’. It would permit billing authorities to apply a premium to properties that have no resident and are “substantially furnished”. The maximum council tax payment that could be imposed would be 200% of the standard bill. There would be no requirement for a property to have been used as a second home for a fixed period of time before the premium can apply.

Labour MP Rachael Maskell proposed amendments designed to define a period of vacancy and reduce it from a year to six months. “I am aware of circumstances in which people have families overseas, for instance, and may make extended visits to see them. I would not want to penalise people because their life journey and responsibilities differ from mine, but if they do not visit a property for six months we can conclude, under the definitions in the clause, that it is an empty dwelling.”

Alex Norris, for Labour, supported the clause and said it was “also right to try to tighten up the measure on the face of the Bill, as my hon. Friend has sought to do, by drawing a line in the sand at six months’ occupation of the property.”

Tim Farron, for the Lib Dems, also agreed the amendments were helpful, and encouraged the Government to seriously consider them. He mused: “Properties are empty for a range of reasons, some of which are perfectly understandable, others less so. Having time limits is wise, as is ensuring that homes are effectively monitored. Using fiscal measures—fines, taxation and so on—to encourage people and focus their minds to make the best use of the property they own is also wise.”

Responding to the discussion, the housing minister said that the proposal for a second homes premium makes clear the situations in which a council may quite properly apply a premium. Those situations are, first, that a property is substantially furnished—distinguishing it from empty property dwellings that may more properly be subject to the empty homes premium—and secondly, that there must be no resident of the property. For the purposes of council tax, a resident is someone who has their sole or main residence in the dwelling. In that case, the resident would pay the council tax normally due on that dwelling as essentially it would be their main home. They would not be subject to a premium as it is their sole or main residence.

“Given those established processes for assessing what is a second home, I do not believe that a further restriction on the definition of properties that may be subject to a premium is needed,” the minister concluded. The amendment could even result in a reduction in the number of second homes liable for the premium, he warned.

Rachel Maskell also suggested amendments to extend the period of time people would have to make arrangements for their property following a bereavement, and so that someone purchasing a second home that requires some improvement can benefit from an exemption for at least one year. These led to a further short debate.

The minister explained that when the owner of a property passes away and leaves it empty, such a property is exempt from council tax as long as it remains unoccupied and until probate is granted. Following a grant of probate, a further six-month exemption can be provided, so long as the property remains unoccupied and the ownership has not been transferred. He suggested these protections were adequate though he promised to reflect on the points Maskell had made and whether any further potential exemptions were needed.

On Maskell’s second amendment, the minister said that while he fully supported homeowners investing in their main or second homes by renovating and improving them, he was “unclear as to why such work on second homes should benefit from an exemption to the premium. The premium would only apply if a property was furnished. If it required substantial rebuilding work, it seems unlikely that the property would be furnished. In that case, a second homes premium would not be due in any case since the property would not meet the definition in the Bill.”

Maskell did not press any of her amendments to a vote.

Infrastructure Levy (Part 4 – clauses 113-115 and schedule 11)

These clauses were debated during the Bill’s 18^th , 19^th and 20^th committee sittings, held on 6 and 8 September. (Links to full transcripts of the sessions from here.)

The debate was opened by Labour’s spokesperson, Matthew Pennycook, who said that the new levy was, in his party’s view, “one of the most consequential aspects of the Bill, with potentially far-reaching implications for not only the provision of core infrastructure but the supply of affordable housing.”

Pennycook noted that the levy proposed in the Bill is a quite different proposition from the one suggested by the Government in their 2020 White Paper. “The latter was premised on a nationally set rate or area-specific rates, and its introduction was to be accompanied by the replacement of the current system of section 106 planning obligations. The amended approach proposed in the Bill, which allows charging authorities to set their own infrastructure levy rate or rates and retains an important role for section 106 on—albeit presently undefined—large sites, is without doubt an improvement on the excessively rigid system put forward in the White Paper.”

However, he said, Labour have two big concerns with the new levy. “First, when we consider how it might work as proposed, it is impossible to escape the conclusion that it will result in a system of developer contributions that is at least as complex as the present one; it is likely to be even more complex. In short, we worry that it may prove onerously complicated to operate in practice.

“Secondly, there is good reason to suspect that the levy as proposed will fail to secure as much, let alone more, public gain from developers. In short, we worry that it will lead to less infrastructure and less affordable housing in the future, while putting the development of less viable sites at risk entirely.”

For the Liberal Democrats, Tim Farron criticized the lack of detail in the Bill, saying the vagueness of the idea would favour developers. “In a situation where the nervous planning authority errs on the side of caution and, therefore, lack of ambition when seeking planning gain, the more the developer manages to gain advantage for itself. Given that there is no guarantee that any value from the levy will accrue to the community where the development will take place, the likelihood of communities opposing developments will increase, therefore making them less likely to go through.”

Housing minister Marcus Jones spoke for the Government. He explained the flaws in the current system which the new levy is designed to address: “The current system of developer contributions is uncertain and fragmented. Local planning authorities can negotiate section 106 agreements to secure affordable housing and contributions to infrastructure, and can choose to charge the community infrastructure levy to collect money from developers for infrastructure that is not affordable housing.”

However, he explained, “The protracted negotiation of a section 106 agreement delays the granting of planning permissions.” Meanwhile, “the community infrastructure levy is a non-negotiable charge, and it is optional as to whether local planning authorities charge it. Only half of local planning authorities currently charge the CIL… Common reasons for not implementing CIL include concerns that the extra charge will reduce the amount of affordable housing delivered because, unlike the [new] levy, CIL cannot be used for affordable housing.”

The minister explained that the new levy aims to capture land value uplift at a higher level than the current developer contribution regime by charging rates based on the final value of developments. [T]he gross development value can be captured because we know what the sale price of that property is when it is sold, just as we do when stamp duty land tax is charged.”

Responding, Labour’s spokesperson said a single, fixed-rate levy mechanism for securing all affordable housing and infrastructure has never previously been tried, and certainly not on the basis of a metric as ‘problematic’ as gross development value. He suggested we do not necessarily know the sale value at the endpoint of a development (it depends what the development is) and that, by breaking the link between individual sites and infrastructure levy contributions, the Government will increase local opposition to development.

Land ownership register (Part 9 - clauses 178-183)

Part 9 of the Bill would provide the Government with an enabling power to require the Chief Land Registrar (or another person) to collect information on the ownership and control of land, and on transactional dealings used to exercise control over land. It would apply only apply to land interests in England and Wales (Scotland and Northern Ireland have their own separate land law regimes).

Opening the debate on these clauses, during the 23^rd sitting of the committee stage, held on 13 October, Levelling-Up minister Dehenna Davison said that this part of the Bill would greatly enhance understanding of who owns or controls land and property. “The Government are determined, for the benefit of us all, to shine a light on complex arrangements used to control land and property. Clause 178 allows the Secretary of State to expand the collection of information about legal and beneficial ownership of land and property in England and Wales. We intend to use the power to dig deep into opaque ownership, and to control structures into narrow use cases.”

The minister said that the power would will ensure that landlords responsible for the cost of remediating unsafe buildings under the Building Safety Act 2022 do not avoid their liabilities. Additionally it would allow the intelligence and security agencies to identify opportunities for hostile actors to misuse properties in the vicinity of sensitive sites and put national security at risk.

She explained that it will provide government with additional information that will allow them to understand who exercises control over land and property, even where that person is not the legal owner. It will provide the basis for assessing that hidden market and producing evidence-based policy.

She explained that clause 181 of the Bill allows for the retention, sharing within Government and publication of information collected under clauses 178 and 179. Information on arrangements used by developers to control land would be published as machine-readable open data, she said. Other types of information collected—but not published—will be shared with and used by Government bodies to carry out their functions.

For Labour, Matthew Pennycook said his party have no issue with these clauses in principle, but he noted that much of the detail is to be fleshed out via future regulations. “As we debate this legislation today, we have little to no sense of a range of important issues, such as precisely what information will be required, who will be required to provide it, under what circumstances and how it will be disclosed. I therefore press the Minister to expand on the helpful comments she just made, and to provide further detail on the Government’s intentions regarding the use of the powers in the clauses in this part. If possible, I would like answers today. As I am sure she has picked up on, there is a certain amount of concern beyond this room about what these provisions entail.”

The minister replied that she was new in post and did not want to risk misleading the committee, so she would respond to some of the points made in writing.

Pennycook may have been thinking, in part of the CIOT’s representation to the committee on this part of the Bill, which, while broadly supportive, expressed regret that only a broad framework of enabling powers for this measure was being passed in primary legislation. “Given so much is being left to regulations, it is important that the regulations are published in draft for widespread consultation with the opportunity for revision before final regulations are laid,” the Institute said in its submission.

CIOT’s interest in this part of the Bill relates to its understanding that, alongside its other purposes, this new register is intended – once the blanks have been filled in – to close a significant loophole in the register of foreign entities owning UK property created by the Economic Crime (Transparency and Enforcement) Act 2022.  This loophole had been pointed out by CIOT during the passage of that Bill and was the subject of a proposed amendment in the Lords as a result.

The Levelling-Up and Regeneration Bill is currently awaiting its report stage.