The Building Safety Levy: What it means for rebuild costs

The government has confirmed that a Building Safety Levy will come into effect on 1 October 2026. It’s part of the ongoing reforms following the Grenfell Tower tragedy, designed to improve building safety and ensure that developers contribute to fixing past issues such as unsafe cladding.

But what does this new levy mean for property owners, and how might it affect rebuild costs and insurance valuations?

What is the Building Safety Levy?

The levy is a charge that developers must pay when seeking building control approval for new residential projects, including student accommodation. It will be calculated on a per-square-metre basis of new floor space and collected by local authorities.

Some developments, such as affordable housing, NHS facilities, care homes, and small projects under 10 dwellings, are exempt. For the rest, it’s a significant cost, with government estimates suggesting it could raise over £3 billion in ten years. The funds will be used to remediate unsafe buildings, particularly those affected by cladding. Read the government guidance here.

How does it connect to cladding and high-risk buildings?

In our recent Technical Insight on cladding and high-risk buildings, we explored how stricter post-Grenfell safety standards already increase rebuild costs. Features such as:

• Non-combustible cladding materials

• Mandatory second staircases in residential buildings above 18m

• Automatic sprinklers and enhanced fire safety systems

… all add layers of cost to any rebuild.

The Building Safety Levy is part of this same push. While it won’t physically change the materials used in a building, it creates a new financial layer to factor in. Just as with cladding remediation, the key for property owners and insurers is recognising how modern requirements reshape the baseline cost of a lawful rebuild.

Will the Levy affect rebuild valuations?

Directly, the levy is a fee for developers. But indirectly, it could influence insurance valuations in two ways:

1. Triggering on rebuilds: If a building were destroyed and rebuilt after 2026, the rebuild would need building control approval. That process could bring the levy into play – raising questions about whether insurance policies would cover it.

2. Rising construction costs: Developers are likely to factor the levy into project budgets. Over time, this could contribute to upward pressure on construction costs more generally, which in turn affects rebuild cost assumptions.

Sharon Masters, Technical Lead and Surveyor at RebuildCostASSESSMENT.com, says, “The Building Safety Levy is another reminder that rebuild costs aren’t fixed in time. Safety requirements are changing, and each new rule has a knock-on effect on what it would cost to reinstate a property. An RCA already takes into account the latest building standards, but what it can’t do is predict future charges like levies. That’s why keeping valuations up to date is so important – it makes sure cover reflects today’s reality.”

What brokers should keep in mind

For brokers advising under Consumer Duty, the introduction of the levy is another reminder of the importance of clear communication:

• Update valuations regularly – rebuild costs are rising, and underinsurance is a growing risk.

• Clarify what’s covered – a rebuild cost assessment covers compliance with current building standards, but not cladding surveys or safety reports.

• Address client concerns – be ready to explain that existing owners won’t suddenly be billed when the levy begins, but that it could apply in the event of a total rebuild.

The Building Safety Levy is the latest development in a long series of reforms designed to make our buildings safer. For property owners and insurers, it reinforces the need for up-to-date valuations and careful communication.

As with cladding and other high-risk building issues, the message is clear: rebuild costs are changing, and insurance strategies must adapt.

If you missed our earlier piece on cladding and high-risk buildings, we recommend giving it a read, as it provides useful background that directly connects to the levy and its implications.

Cladding and high-risk buildings: what you need to know about rebuild costs