Community infrastructure levy explained

The community infrastructure levy is a planning charge on new development which is intended to help communities fund local infrastructure that will support the development of their area. It has the potential to affect anyone looking to build in a region where the levy applies. Given the complexity of the planning system it is vital that advice is taken at an early stage to determine whether a proposed development will be caught and, if so, who will be responsible for payment. Yildiz Betez, commercial property expert with Thackray Williams provides an overview of how the levy works.

When the levy can be imposed

The right to impose the community infrastructure levy does not arise automatically; it requires local planning authorities to positively adopt and publish a levy charging schedule. Although there are many authorities who have made this election, there are many who have not. You should therefore always check whether the authority responsible for the area in which your development will take place has elected to adopt and impose the levy.

It is important to be aware that the community infrastructure levy applies in addition to any contributions required under section 106 of the Town and Country Planning Act 1990 provided there is no attempt by the local authority to charge a contribution for the same item twice.

Liable developments

The levy typically applies to commercial and residential developments that involve creating new buildings or extending buildings that already exist, even when undertaken as general permitted development.

It is calculated on the basis of the new floor area created by the development, ignoring the floor area of any existing building on the site, provided that the building in question was continuously occupied for at least six months in the three years before planning permission for the development was granted or, where relevant, the last of any reserved matters were approved.

For non-residential developments, the levy is only chargeable if the gross area of the development is more than 100 square metres. That minimum does not apply to houses and flats, even single units, unless the house or flat is a self-build which is to be occupied by the person who built or commissioned it as their only or main residence. Self-build housing that satisfies this test is exempt from the levy.

Certain types of development are exempt from the levy on public policy grounds, including some social housing and charitable development and so-called granny annexes.

Amount of charge

The rate at which the community infrastructure levy is charged will vary from authority to authority and may even vary within the same region if an authority has decided to apply different rates to different areas or to set the rate according to the intended use of the development space.

The rate that applies will have been set taking account of the need to balance the funding of much needed local infrastructure with the need to ensure that development in a region remains economically viable.

Where the levy is applied, it will be shown as a charge in pounds per square metre of development.

Responsibility for payment

The person responsible for payment is the person who assumes responsibility for the levy, and this can be difficult to determine unless the development process is handled carefully.

Frequently the developer of the site will assume liability and agree to pay the levy, possibly in instalments or phases as the development progresses. Occasionally, however, the development agreement may provide for someone else to assume responsibility.

It is important that the issue of liability is agreed early on as the fall-back position is that, in the absence of liability being assumed, payment of the levy will be apportioned between the freeholder and anyone who occupies the land under a lease which has at least seven years left to run when permission for the development is granted.

Unless the local authority agrees to payment by instalments, the levy will usually fall due for payment as soon as the development commences.

Infrastructure that can be funded

The types of infrastructure on which the levy may be spent are widely drawn and can include a diverse range of things like new or improved transport links, flood defences, schools, hospitals, parks, cultural facilities, even district heating systems. The local authority must show that what it is proposing to spend the money on is needed to support the development of the area.

A proportion of the money received will go directly to the neighbourhoods and parishes in which the development has taken place and can be used for things other than infrastructure provided they support development needs, such as the provision of social housing.

For further advice about the community infrastructure levy, or any other commercial property matter, please contact Yildiz.