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New Homes Warranties and The Building Safety Act
The Building Safety Act 2022 has already brought in substantial regulatory reform with regard to building and fire safety, and continues to alter the property development landscape as sections of the Act are progressively brought into force – frequently with little or no warning.
This article focuses on provisions of the Act relating to New Home Warranties which have yet to actually come into force. These will apply to all newly constructed dwellings, and will make build warranties on these mandatory, and extend these to a minimum of 15 years. These changes will have a substantial impact on developers, housebuilders and insurers alike.
What Buildings Are Affected?
Whilst common in practice and generally a prerequisite to obtaining mortgage finance, new home warranties have not previously been mandated by law. Where provided, these are typically provided for a 10 year period – of which 2 years will be covered by the developer or housebuilder, and the remaining 8 by the policy provider.
Under section 144 of the BSA, any person carrying out a development in England which results in the creation of one or more dwellings will now be obligated to provide a new build warranty to anyone acquiring an interest in the dwelling, for a minimum term of 15 years from the date on which the relevant interest is granted. The extended term reflects the 15-year limitation period envisaged elsewhere in the BSA.
This applies in connection with any building work done that creates a new home, and not just the construction of a new building. So for instance, the conversion of commercial space to residential space would be caught under the regulations.
Once in force, the provisions will apply to any new dwelling sold or transferred from that point onwards. They will not apply retrospectively, meaning that warranties granted before that date will not need to be extended.
What Will The New Warranties Need To Cover?
A new build warranty is defined under section 144 as an arrangement by which:
- the developer agrees, in specified circumstances, to remedy either specified defects or any defect in the dwelling that occurs within a specified period following completion of the build, and
- a prescribed person obtains the benefit of a policy covering either specified defects or any defects in the build.
The Act also grants the Secretary of State powers to impose minimum requirements for such warranties by regulation. These are likely to include requirements as to the solvency of any insurer or underwriter, the assignability of the warranty, what defects must be specified, what levels of cover must be provided and even maximum amounts for any excess – but these details have yet to be confirmed. Whether the developer’s specified period of liability will be extended also remains to be seen.
What Are The Penalties For Failing To Comply?
Once in force, it will be unlawful for developers of a new build home to sell it without providing a 15 year warranty, failing which penalties will apply. The Secretary of State will set out the exact level of financial penalties that could be levied.
At present, section 145 provides that the maximum level of any penalty set will not exceed £10,000 or 10% of the sale price (whichever is the greater). The legislation also states that developers who have a “reasonable excuse” for failing to take out the warranty may not have to pay a fine. What constitutes a “reasonable excuse” has not yet been defined.
Interestingly, the standard of proof to which developers will be held in evidencing that they have a “reasonable excuse” will be the criminal standard – they will have to demonstrate this beyond reasonable doubt.
When Are The Provisions Likely To Come Into Force?
The government has stated that it intends to consult widely on the proposed minimum standards, and that it intends to delay commencement of section 144 to allow industry the opportunity to consider the outcome of that consultation. The relevant consultation has yet to be published, and no clear announcement has been made as to when such legislation will be triggered. Whilst Government originally published guidance on new build warranties, this was withdrawn in July 2022, and no further guidance has been published since.
That being said, these changes are inevitably on the horizon, and developers and housebuilders must start to prepare.
How Can Developers Prepare?
Property developers should begin engaging with their warranty providers now, particularly if any agreements with them are being renewed, and they should also budget any consequent increase in insurance premiums into their development costs. Given the length of time the policy must cover, an A-rated insurer will be required to back any such warranties.
To discuss any of the points raised in this article, please contact Stephanie Houston or fill in the form below.
What are the Tax Implications of Gifting a Property?
Properties commonly comprise the majority of an individual’s estate, in value terms, and so reviewing the ownership and implementing changes around property are key aspects of estate planning.
In 2021/22, 2.1 million households reported having at least one second property, and so clients often consider whether to gift their property to reduce the value of their estate and, in doing so, mitigate their potential inheritance tax (IHT) exposure.
This article focuses on the CGT and IHT implications when considering gifting property, particularly in light of the Spring Budget announcement that the top rate of Capital Gains tax (CGT) for higher and additional rate taxpayers is being reduced from 28% to 24%.
Capital Gains Tax
A sale or gift of a property is treated as a disposal for CGT purposes. If any asset is disposed of and there has been an increase in value since the date the asset was acquired, there will likely be a charge to CGT. The amount of CGT is calculated by looking at the difference between the value at the date of acquisition and the value at the date of disposal after allowable deductions such as estate agents and solicitor fees.
There is, however, a potential CGT relief available for individuals on the disposal of their main residence. Principal Private Residence (PPR) exempts, without limit, the full gain on the sale or gift of one’s main residence. The relief is available in full when the property has been an individual’s only or main residence for the entire period of ownership (or all but the final 9 months of ownership).
PPR is also partially available when the residence has, at some point during the ownership, been the main residence, such as if the property has been let out for one or more periods.
In recent news, controversy surrounding the applicability of PPR has come under the spotlight in relation to Labour’s deputy leader, Angela Rayner. Mrs Rayner is reported to have failed to pay CGT on her disposal of her property as she stated it was her main residence. However, for married couples, as in the case of Mrs Rayner, they can only have one principal residence for CGT purposes and if they do own more than one property, they have to choose which is their main residence.
It is, therefore, unclear whether this property was her main residence and if her disposal was, in fact, eligible for PPR.
Individuals should, therefore, carefully consider the potential CGT implications of any disposal.
Capital Gains Tax Rates
From 6 April 2024, the annual exempt amount for CGT purposes is reduced to £3,000 for an individual in each tax year, and the rest of the gain (to the extent there is a gain) is chargeable as follows on residential property:
| Gains on disposals of residential property and carried interest. | |
| Rate for basic rate taxpayers | 18% |
| Rate for higher and additional rate taxpayers | 24% |
Inheritance Tax
A second consideration is the IHT implications of a lifetime gift of property.
As a starting point, IHT is charged at 40% and applies to UK and non-UK residents alike on their ownership of UK situated assets. All individuals, including non-UK residents are entitled to an allowance of £325,000 (known as the nil-rate band) under which IHT is not payable. As such, the rate of tax is 40% insofar as the value of the deceased’s UK assets exceeds the nil-rate band.
The value of a gifted property above the available nil-rate band would likely be considered a potentially exempt transfer (a PET). This means that IHT is not payable on that gift provided the individual who makes the gift survives seven years.
If the individual making the gift were to die within seven years of making the gift of the property, the gift will be pulled back into the estate, and IHT will be payable to the extent it exceeds the nil-rate band. The IHT will either be payable by the persons who received the gift or from your estate at the rate of 40%.
A further consideration is, if a property is gifted and the individual making the gift continues to benefit from the property for example by receiving the rental profits, the gift would be treated as remaining in your estate. This is known as a ‘gift with reservation of benefit’.
Conclusion
In summary, if you are considering making a gift of a property, legal advice should be taken of the potential tax implications of making the gift.
For private wealth & tax advice and services, please contact Eleanor Catling via our contact form below.
Update Salary Requirements for ILR as a Skilled Worker
The Home Office issued the new Statement of Changes to the Immigration Rules (HC 590) on the 14 March 2024, detailing significant changes to the Skilled Worker routes. The changes take effect from 4 April 2024.
What Are The Changes To The Salary Requirement?
The new immigration rules coming into effect on 4th April 2024 will increase the minimum salary threshold for sponsoring a Skilled Worker, which will result in changes to the salary requirement for ILR applications. Under the new rules, the minimum general salary that the applicant will need to be earning at the time of their ILR application is 38,700 GBP per year, or the going rate for their occupation, whichever is higher.
What Are The Transitional Arrangements?
- Transitional arrangements have been put in place for Skilled Workers who made their initial application with a CoS issued before 4 April 2024., and who have continued to hold permission to remain as a Skilled Worker. Those applying for ILR who fall under these transitional arrangements must be paid at least 29,000 GBP or the going rate (which is set at the 25th percentile under the tradeable points option F), whichever is higher.
- Applicants must make their application prior to 4 April 2030 to qualify under the transitional arrangements.
Are There Any Other Exceptions?
In addition to the transitional arrangements, certain exceptions to the new salary threshold will remain, and a lower salary threshold will be applied in certain circumstances. Some of the exceptions include:
- If an applicant’s last role was in the occupation code listed in Appendix Immigration Salary List, the applicant will need to be earning at least 30,960 GBP
- Other exemptions apply such as those roles listed on the Immigration Salary List or the Shortage Occupation List, or in a health or education job on a 2020 occupation list, they will need to be earning at least 23,200 GBP, or the going rate for their role, based on the occupation code or the relevant code for the national pay scale or band.
- Other exceptions apply.
Skilled Workers applying for ILR from 4 April 2024 should, therefore, ensure that their salary meets the new requirements as applicable to their circumstances.
How our Immigration Solicitors can help
If you require legal advice on an application for Indefinite Leave to Remain or settlement as a Skilled Worker, our immigration specialists are always happy to have an initial call.
Please contact Jayesh Jethwa or fill out our enquiry form below.