HBF warns council tax charges threaten SMEs

The Home Builders Federation has warned that council tax charges on unoccupied, unfurnished, and unsold new homes are putting further pressure on SME housebuilders.

The trade body’s Licence to Bill report, produced with Paragon Development Finance, says almost half of local authorities are charging developers full council tax on newly built homes before they are sold or occupied. HBF argues that the current system is inconsistent, often premature, and poorly aligned with the realities of bringing new homes through completion, marketing, and sale.

Developers can become liable for council tax once a property is deemed substantially complete and entered into the valuation list, even where it has not yet been sold or occupied. In some cases, builders may still be dealing with utilities, snagging, labour delays, materials availability, conveyancing, or sales conditions while charges begin to accrue.

The report says 88% of SME developers surveyed reported that council tax charges are affecting cash flow and development viability. It also says developer appeals against council tax bills increased by 154% in the 2025/26 tax year compared with 2022/23, pointing to growing friction between the tax regime and current housing-market conditions.

HBF is calling for a national framework under which new homes would only be judged substantially complete once a building control completion certificate has been issued. It also wants a 12-month Class C council tax exemption for newly built dwellings that are unoccupied and substantially unfurnished, alongside a two-year exemption from the Empty Homes Premium and Second Homes Premium for new build homes.

The warning sits within a wider viability debate across housebuilding. HBF has already put the cumulative cost burden on new-home delivery at around £76,000 per home since 2020, covering taxation, regulation, materials, labour, and site-specific requirements. That pressure, set out in the £76,000 homebuilding cost burden analysis, forms the backdrop to the latest council tax intervention.

Council tax is smaller than land, labour, finance, or materials as a single cost line, but it lands at a sensitive point in the development cycle. Smaller builders often rely on completed sales to repay debt, release cash, and move into the next site. Extra holding costs during the sales window can weaken the cash position at the moment a project is supposed to recover capital.

The definition of completion is central to the dispute. Where a home is considered substantially complete before final utilities, certification, marketing, or occupation are resolved, a developer can face a tax bill before the asset is commercially productive. In faster markets, that exposure may be brief. In slower sales conditions, or where mortgage affordability delays transactions, the charge can persist long enough to affect scheme viability.

Local authorities have legitimate reasons to discourage long-term vacant homes, but newly built properties awaiting sale sit in a different category from existing homes deliberately left empty. Applying the same financial pressure to both can create a distorted outcome, with policy designed to increase occupation adding cost to the companies expected to deliver new supply.

The issue is particularly acute for SME developers. Larger housebuilders can spread holding costs across wider pipelines and stronger balance sheets, while smaller companies may have only a handful of units exposed to a local authority decision. That uneven effect cuts across government ambitions to diversify housing delivery and rebuild the SME housebuilding base.

Planning reform and housing targets will not be enough if finished homes carry unpredictable liabilities before they are sold. For smaller builders, the practical delivery equation now includes not only permission, finance, and construction cost, but the local tax treatment of homes at the final stage of the project cycle.