Navigating The Building Safety Act 2022: Understanding tax implications for landlords in 2025

Following the Grenfell Tower fire, the Building Safety Act 2022 (The Act) was passed and took full effect from April 2024.  As we move through 2025, building owners and landlords will face further pressures to address building safety issues through the Remediation Acceleration Plan and the Building Safety Levy.

In this article, we delve into the critical aspects of the Act and explore the tax implications for landlords as they work to comply with the safety standards.

Post Grenfell Reforms: key tax considerations for landlords

The Act introduces changes to general building safety rules as well as new regime for higher risk (residential and mixed-use) buildings at least 18 meters tall or have at least 7 storeys. The Act also makes changes to Fire Safety Regime. To comply with these regulations, landlords will need to thoroughly assess their properties, and this will inevitably incur additional costs.

Navigating compliance costs

Understanding the right tax treatment for these additional costs is crucial for landlords.

The increased expenditures could significantly impact landlords’ financial planning and tax liabilities. Properly categorising and claiming these costs can help mitigate the financial burden and ensure compliance with tax legislations.

Understanding capital vs. revenue expenses

Capital expenses, such as significant improvements or structural changes mandated by the new regulations, typically cannot be deducted from taxable income in the year they are incurred.

Instead, these costs are usually added to the property’s basis and may receive tax relief by claiming capital allowances in the year qualifying expenditures are incurred. Tax relief could be maximum at 100% if the Annual Investment Allowance of the business is available or by claiming full expensing for the corporate landlords.

Examples of these capital expenses are: 

• Installing new fire-resistant cladding 
• Remediating a cladding defect that involves upgrading to a higher standard of cladding 
• Installing new sprinkler systems or fire alarms  
• Implementing comprehensive fire alarm and systems

On the other hand, revenue expenses, such as maintenance and repairs required to meet the new safety standards, can often be deducted from taxable income in the year they are incurred.

Examples of these revenue expenses are: 

• Routine maintenance fees 
• Minor repairs 
• Servicing existing fire safety equipment

The above examples are high-level implications, the precise tax implications will depend on specific details. Accurately classifying these expenses will help landlords optimise their tax positions and avoid potential issues with HMRC.

VAT implications of cladding works: essential insights

On 17 December 2024, HMRC issued Revenue & Customs Brief 3/24 and Guidelines for Compliance 11, where they set out their long-awaited policy in relation to the VAT treatment of cladding remediation and other fire safety works to residential buildings.

As expected, HMRC consider such works to be standard rated in most cases. They do accept that snagging is zero-rated, however, because snagging must be carried out by the original contractor where there is a fault with the original construction services, it is difficult to imagine many circumstances where this will apply, because there is unlikely to be an additional charge.

Circumstances where HMRC consider charges will be standard rated include where: faults in the original construction are rectified by another contractor; a building was finished to the appropriate standards at the time but new regulations mean additional works are required; and where fire safety measures where part of the original plans but were not installed at all at the time.

With regard to the recovery of VAT incurred on such works, the question will be whether there is a direct and immediate link to a specific taxable supply or whether the expenditure is a cost component of the business’s future taxable supplies.  In the latter case, if it can be shown that the remediation works are necessary to protect the reputation of the business, it is likely that HMRC will accept that the cost is an overhead of the business.  This means that the VAT would fall into the residual pot for partial exemption purposes and be recoverable according to the method’s recovery percentage.  This may well mean that VAT on such works is a cost for residential landlords.

Our advice

If you are a landlord and require advice on any aspect of property taxation, please contact us today and a member of our team will be happy to help you.