The council tax loophole driving UK housebuilders out of the market
Key Points
- Developer appeals against council tax bills on unsold new homes rose 154% in 2025/26 compared with 2022/23.
- The Licence to Bill report by HBF and Paragon Development Finance found 45% of local authorities charge full council tax on newly built homes awaiting sale or occupation.
- 88% of SME housebuilders said the charges are hitting cash flow and threatening future site delivery.
- HBF estimates it now costs £76,000 more to build a home than in 2020, with more than half of the increase tied to policy costs.
- HBF is calling for a national framework, a 12-month Class C council tax exemption, and a two-year premium exemption for new builds.
Developer appeals against council tax bills on newly built homes rose 154% in the 2025/26 tax year, with a new industry report warning the charges are now blocking the delivery of housing supply.
The figure comes from Licence to Bill, a report published on Thursday (28 May) by the Home Builders Federation (HBF) and Paragon Development Finance.
It found 45% of local authorities in England and Wales are charging developers full council tax on newly built homes that are still awaiting sale or occupation, with bills sometimes landing on properties that lack utilities, fixtures or fittings and are not yet habitable.
Councils can impose council tax once a property is judged “substantially complete”, a threshold the report says lacks clear national guidance.
Delays in utility connections, labour availability and materials shortages, often outside a developer’s control, can mean homes deemed complete for tax purposes remain weeks or months away from being ready to live in.
Developers therefore face full charges on stock that imposes no direct cost on local services.
SME housebuilders are taking the brunt of these charges, the report shows. 88% told the HBF and Paragon that council tax charges are hitting cash flow and threatening their ability to deliver future sites.
Smaller builders typically operate with tighter margins and more limited access to finance than national developers, meaning a premature tax bill can determine whether a scheme remains viable or future sites come forward at all.
The HBF estimates it now costs £76,000 more to build a home than in 2020. The trade body says more than half of that increase stems from policy choices by ministers rather than higher building and labour costs, with new charges including a building safety levy due to take effect in October adding further pressure on margins.
“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,” said Neil Jefferson, Chief Executive of the Home Builders Federation.
He said charging council tax on incomplete new build homes before they are sold or occupied places further pressure on cash flow and can make the difference between a site being viable or not.
The report calls on Government to introduce a national framework under which properties are only judged substantially complete at the point a building control completion certificate is issued.
It also wants a 12-month Class C council tax exemption for newly built dwellings that are unoccupied and unfurnished, and a two-year exemption from the Empty Homes Premium and Second Homes Premium from the date of completion or entry into the valuation list.
“Paragon works predominantly with SME developers, so we see first-hand how disproportionately this issue affects smaller housebuilders,” said Neal Moy, Managing Director of Paragon Development Finance.
He said early and inconsistent charges can quickly undermine a scheme’s viability and delay delivery, with clearer rules giving developers greater predictability and funders more confidence to back housing delivery.
