Community Infrastructure Levy (CIL)

KEY LEARNING POINTS

  • Private homebuilders are exempt from the Community Infrastructure Levy and there is a clear process they need to follow to benefit from this
  • Phased planning permissions are a key to tool to effectively deliver the levy exemption on multi-home projects
  • Councils can help private homebuilders to understand how the exemption works and they should engage positively with developers to apply the exemption to larger projects

Introduction

The Community Infrastructure Levy (CIL) enables councils in England and Wales to raise funds to support the development of their areas by imposing a charge or ‘levy’ per square metre on new development, including housing. The charge applies to all new homes and any development, extension of refurbishment that creates net additional floorspace of more than 100 sq m.

The Levy can be used to fund infrastructure such as flood defences, schools, hospitals and other health and social care facilities, parks, green spaces and leisure centres.

As of July 2015, almost one in three councils had adopted a CIL charge. The scale of the charges varies widely but £75-£100 per sq m appears to be an approximate national average.

Private homebuilders are exempt from paying CIL under the Community Infrastructure Levy (Amendment) Regulations 2014.

About

This is one of many Briefing Notes that explain resourcing, planning, land, finance, demand, marketing, consumer support and various technical issues. To see the full range of guidance click here.

Definitions

For the purposes of this Toolkit we have made the following definitions:

NOTE

This Briefing Note will be revised when the Regulations to support the commencement of the Self-build and Custom Housebuilding Act 2015 and the Government’s Right to Build policy are finalised.

HOW DOES THE EXEMPTION WORK?

The exemption applies to homes built or commissioned by individuals for their own use. Group projects also qualify. There is also an exemption for people who extend their homes or build residential annexes.

Private homebuilders can apply for an exemption to their local council at any time, as long as their development has not started or ‘commenced’. The definition of ‘commenced’ is set out in section 56(4) of the Town and Country Planning Act 1990 and broadly means the point at which some limited works begin on site to implement a planning permission. This includes demolition and other minor groundworks, the digging of trenches, laying of pipes and changes to the use of the land.

Private homebuilders who want to claim the exemption must take two steps before commencing their development: -

  • Firstly, they must commit to pay the levy on the home they want to build. This is done by completing an ‘Assumption of Liability’ form. If the original liability was in the name of a housebuilder, developer or custom build enabler, the private homebuilder must complete a ‘Transfer of Assumed Liability’ form and submit this to the council (ie. the ‘collecting authority’)
  • Secondly, they must certify that their project meets the qualifying criteria by submitting a ‘Self Build Exemption Claim Form – Part 1’ to the council
Private homebuilders must complete this form before starting work to certify that their project complies with the CIL exemption rules

On receipt of the ‘Self Build Exemption Claim Form – Part 1’, the council must notify the private homebuilder in writing as soon as practicable to confirm that the exemption is to be granted. The council will then register the chargeable amount (i.e. the levy that would have been payable if the exemption had not been granted) as a ‘local land charge’ on the property for three years from its completion. Mortgage providers need to be notified of this and approve it.

If the private homebuilder starts the development before they have received notification from the council, the levy charge must be paid in full within the time period specified by the council.

Before starting the development, the private homebuilder must submit a ‘Commencement Notice’ to the council. This must state the date on which the development will start. If this is not done the private homebuilder will become liable for the full levy charge.

On completion of the building work private homebuilders have to submit this form, to confirm that their project qualifies for the exemption

On completion the private homebuilder must submit an ‘Exemption Claim Form – Part 2’ to the council which provides supporting evidence to confirm their project qualifies for relief (this must be done within six months of formal completion of the home).

Private homebuilders applying for an exemption have a right to appeal to the Valuation Office Agency against the amount of levy exemption granted. There is no scope to appeal against a council’s refusal to grant an exemption.

If personal circumstances change and the private homebuilder wants to dispose of the property before the three year occupancy limit expires, they can do so, but they must notify the council. The levy then becomes payable in full. If they don’t notify the council enforcement action can be taken and surcharges will become payable.

 

IMPLICATIONS FOR LARGER SITES

General considerations 

Landowners, developers and custom build enablers who are bringing forward serviced plots, shell homes or projects for groups of private homebuilders are not eligible to apply for the exemption. This is because only private homebuilders can claim under the exemption rules.

Landowners, developers and custom build enablers can however indirectly benefit from the exemption by transferring the levy liability to their private homebuilder clients when plots are sold.  This is done by completing ‘Form 4: Transfer of Assumed Liability’. This could be organised as part of the sale of the plot; in the case of a shell home it would need to be done before any construction work begins.

Once private homebuilders have assumed liability to pay the levy they will need to follow the process for claiming the exemption outlined above. To make the process easier for private homebuilders the landowner, developer and custom build enabler could submit the required forms to the council once they have been signed by their clients.

Multi-unit sites and phasing

One area that has generated considerable uncertainty is how the exemption applies to larger sites involving multiple privately built homes (for example where a landowner sells serviced plots or a community group works with a construction company to build a collective project).

On larger developments each plot should be identified as a separate phase, so that the individual purchasers can then apply for the CIL exemption

In those circumstances it is essential that the initiator bringing forward the project applies for a phased planning permission. This is to ensure that the site can be serviced without the levy becoming payable, and that each plot can become a separate chargeable development so that individual private homebuilders can take advantage of the exemption they are entitled to.

The Government supports such an approach and has issued advice through its Planning Practice Guidance (see box below).

Self build exemption work for multi-unit schemes

“For multi-unit schemes (for example, where a builder sells serviced plots or a community group works with a developer), applicants should consider applying for a phased planning permission, to allow each plot to be a separate chargeable development. This will prevent the charge being triggered for all plots within the wider development as soon as development commences on the first dwelling. This will also ensure that if a disqualifying event occurs affecting one unit, it does not trigger a requirement for all to repay the exemption. Under the 2014 Regulations, schemes can be ‘phased’ for levy purposes even if they do not benefit from ‘outline’ planning permission. See more about phased payments.”

Extract from Planning Practice Guidance (Paragraph: 145 Reference ID: 25-145-20140612) (in reference text)

 

This approach is consistent with the levy regulations, which allow detailed and outline planning permissions (and therefore ‘hybrid’ permissions) to be treated as phased developments for the purposes of the levy. Where a planning application is phased in this way it means that each phase (eg. each parcel, plot or groups of plots) can be regarded as a separate ‘chargeable development’ and therefore become eligible for exemption from the levy.

However, to be implementable the planning application and the permission must make it clear that the development will be phased. This is usually achieved by relating the application and permission to a clearly marked ‘phasing plan’ and accompanying schedule with each phase (or plot) clearly listed. This information is best submitted with the planning application or submitted in response to a pre-commencement condition imposed by a planning permission.

To ensure that the site servicing can start without triggering the levy the initiator who is bringing forward the project can either: -

  • Submit a planning application for the whole development which identifies the enabling infrastructure works as the first phase of development; or
  • Submit a hybrid planning application with the enabling infrastructure works (access and siting of plots) dealt with as full permission, with the construction of the homes on the serviced plots treated as reserved matter consents

Levy charges for each phase are then calculated at the reserved matters stage, when full details of the floorspace and the form of development is known.

This does not mean that each privately built home requires a separate planning application because planning permissions can be linked to a Design Codes or delivered through Local Development Orders. Further detail on the use of Design Codes is set out in Briefing Note Design Codes and Plot Passports.

Irrespective of what type of application is submitted, the first phase of the scheme should relate to works associated with servicing of the site, including any access roads and utilities up to plot boundaries. Levy charges are only payable for new housing floorspace (not for on-site infrastructure), so this work should not trigger any levy liability. This enables plots to be sold to private homebuilders and levy liability for the construction of the homes to be transferred from the builder to the private homebuilder by following the above process.

Any planning permission for new homes that is not phased will be liable to incur levy charges from the day the permission is given, regardless of any planning conditions. This will not allow private homebuilders to apply for the exemption.

The approach to phasing is set out in Regulation 8(3A) of the CIL Regulations 2014 and the Government’s Planning Practice Guidance.

Construction of foundations and use of ‘Golden Brick’ 

To address constrains relating to the way VAT is levied, developers often adopt a ‘Golden Brick’ sale to help reduce costs for the private homebuilder. ‘Golden Brick’ means that a builder or custom build developer constructs the foundation of the home to the point that the first brick is laid above foundation level (the golden brick). This enables the work to be zero rated for VAT purposes, which thereby reduces some of the cost for the private homebuilder, as 20% of the materials costs can be recovered.

In such circumstances CIL charges will become payable by the developer as soon as the foundation work is commenced on a plot unless the private homebuilder has assumed liability and followed the above outlined process to apply for an exemption.

Further detail on the use of ‘Golden Brick’ is set out in Briefing Note Taxation.

IMPLICATIONS FOR GROUP PROJECTS

Collective or group projects can also benefit from the exemption so long as the individuals involved comply with the procedure for the exemption.

The exemption also includes ‘communal accommodation’ that is for the use of the occupants of more than one of the homes; this could include, for example, shared facilities or guest accommodation. The exemption does not, however, extend to communal space that is for the use of the general public, or for commercial development such as a retail unit.

The communal development exemption is calculated using a formula that is set out in the Levy Regulations (Regulation 54A). This is applied where the gross internal area of the communal development is apportioned to the individual homes on the site, based on the gross internal floor space of the privately built homes.

TOP TIP

Understand how the CIL exemption applies to larger projects

Phased planning permissions are a key to tool to effectively deliver the levy exemption on multi-unit home projects – councils need to understand how the process works.

IMPLICATIONS FOR COUNCILS

As collecting authorities, councils have a key role to play to enable private homebuilders to benefit from the levy exemption. There are several ways councils can help if they have introduced a levy in their area, including: -

  • Providing basic information and some Q&As on their website to explain how the exemption works and can be applied to multi-home projects – many councils have already done this
  • Publishing guidance to assist applicants when they apply for planning permission, perhaps as part of a Supplementary Planning Document – this approach has been taken by Teignbridge District Council and helps to provide certainty and clarity for all parties
  • Explaining the application of the levy to multi-home projects when engaging with developers in pre-application discussions, and working positively to enable serviced plot developments to be delivered in phases

TOP TIP

Explain how the CIL exemption works

Councils should help private homebuilders understand how the exemptions operate, and they should engage positively with developers to apply the exemption to larger projects

Further Reading

The following Case Studies offer useful insight into the issues discussed in this Briefing Note:

CREDITS

The NaCSBA Research & Development Programme is funded by the Nationwide Foundation and aims to promote the self-build and custom build sector as an affordable route into housing for a greater number of people in the UK.

For further information, please visit:

www.nacsba.org.uk or www.selfbuildportal.org.uk