New report warns inconsistencies in the application of council tax regime is threatening cashflow, development viability, and new housing delivery

The ‘Licence to Bill’ report, published today (Thursday 28 May) by the Home Builders Federation (HBF) and Paragon Development Finance, reveals almost half (45%) of local authorities are charging developers full council tax on newly built homes awaiting sale or occupation, adding to growing problems with home building sites no longer being viable to develop.

Council tax is frequently levied on developers before a home has been sold or occupied in some instances, when homes are completely uninhabitable, lacking utilities, fixtures, or fittings, 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.

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, indicating that the current constraints facing developers, and the resulting delays to home sales, are becoming a growing problem under the present regime.

Where short-term relief (discounts) is available, responses show that support is often modest, inconsistent and time limited, leaving developers exposed to council tax liabilities before homes have been sold or occupied.

The report highlights a fundamental weakness in the current system with a lack of clear guidance as to what constitutes a completed property, or the point in the build process at which a property can reasonably be expected to be completed within three months.

HBF is urging 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, said: “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.”

Neal Moy, Managing Director of Paragon Development Finance, part of FTSE 250 Paragon Banking Group, said: “Paragon works predominantly with SME developers, so we see first‑hand how disproportionately this issue affects smaller housebuilders. Early and inconsistent council tax charges are something many of our clients are grappling with, and the impact on cashflow can be severe.

“When significant liabilities arise before homes are sold, occupied or even properly habitable, it can quickly undermine a scheme’s viability and delay delivery. Clearer, more consistent rules would give developers greater predictability, cost certainty and allow funders to support housing delivery with greater confidence – which is why we’re backing this report and its recommendations.”

For more information on HBF’s asks of Government and how council tax has affected SME home builders, read the full report: HBF.co.uk/research-insight/licence-to-bill