Local elections and UK property developers: adapting to risk
For developers and property-backed businesses, planning delays caused by council leadership changes present a financial risk. How have the May 2026 local election results fuelled this uncertainty, how can property businesses adjust to it, and what are the accounting areas where professional advice can reduce risk and support growth?
Why local elections matter for planning
National government may set housing targets and reform agendas, but councils determine local plans, site allocations, planning conditions and whether applications are approved.
Many fragmented councils with no overall control arose from the recent local elections. Such councils are more likely to be run by coalitions or minority administrations.
This often leads to cautious decision-making, particularly in the first year after elections. For the property sector, this translates into increased costs via extended planning timetables and deferred applications at committee stage.
Despite national efforts to depoliticise planning through greater delegation, councillors may be more inclined to assert local control, especially where developments attract vocal public opposition. Political judgement increasingly determines how projects proceed.
Root causes of planning uncertainty
Responses to planning consultations are often dominated by a small number of organised objectors.
This can result in communities who view planning as opaque and developer-led, and developers who see engagement as unpredictable and resource-intensive.
Later objections, deferrals and political intervention become more likely.
The extended planning uncertainty arising from this has direct accounting consequences.
When planning delay hits the P&L
Before consent is secured, developers incur significant costs: architects, surveys, environmental assessments, legal advice and internal project costs. Under UK accounting standards, many of these costs can be capitalised where a project is expected to proceed.
That assessment depends heavily on the likelihood of securing planning permission.
As delays lengthen and outcomes become less certain, finance teams and auditors are required to reassess whether capitalisation remains appropriate. Where planning approval becomes doubtful, previously capitalised costs may need to be written off to the profit & loss account, reducing reported profits and net assets.
Political uncertainty can therefore convert what appeared to be an asset into an immediate financial loss.
Impact on borrowing costs, covenants and tax
Planning delays also affect the treatment of borrowing costs. Interest on development funding is often capitalised during active development, but accounting standards require capitalisation to be suspended where activity stalls for an extended period.
Where planning delays result in prolonged periods of limited progress, interest must be expensed instead. This can depress profitability, reduce the leeway in lending covenants and strain lender relationships.
Tax consequences can follow. Capitalised interest may crystallise in later years, increasing exposure under the Corporate Interest Restriction regime where elections weren’t made early in the project lifecycle. What begins as a planning delay may therefore result in higher effective tax costs in future periods.
Meanwhile, holding costs – interest, insurance and professional fees – continue to drain cash while revenue remains deferred.
Impairment and balance sheet risk
From a technical accounting perspective, prolonged uncertainty also raises impairment risk. Development land and work in progress (WIP) must be reviewed for indicators that carrying values may no longer be recoverable.
Repeated refusals, shifting political priorities or sustained opposition can reduce expected planning uplift and net realisable value. Where this occurs, land or WIP values may need to be written down.
For single-asset special purpose vehicles (SPVs), such impairments can significantly weaken balance sheets and, in extreme cases, threaten solvency.
How the property sector is adapting
In response, developers and advisers are adjusting both planning and financial strategies. To manage future interest deductibility, this includes
- More conservative capitalisation policies
- Earlier impairment reviews
- Enhanced cashflow forecasting
- Proactive tax elections
Structuring is also evolving. To isolate planning risk and protect wider group balance sheets from prolonged uncertainty, we are seeing increasing use of:
- Option agreements
- Conditional contracts
- Ring-fenced SPVs
How BKL can help
Slower planning decisions resulting from this year’s local elections will reshape financial outcomes.
Our property sector specialists can help you to assess the risk that flows directly through your accounting judgements, tax exposure, cashflow and balance sheet strength, and to devise strategies to support your resilience and growth.
For a chat about how we can help you, get in touch with Jake Lew using the form below.
Contact Jake
Frequently asked questions: Local elections 2026 and UK property development
What impact do local elections have on property development in the UK?
Local elections can directly influence whether property developments progress, stall, or change direction. Councils control planning decisions, local plans and site allocations, so changes in political leadership often lead to delays as priorities are reset and committees restructured.
In more fragmented councils, decision-making can become slower and more cautious, particularly where developments face public opposition. This makes planning outcomes less predictable and increases both timing and financial risk for developers.
Why are planning delays now considered a financial risk rather than just a timing issue?
Planning delays are a financial risk because they affect how costs, income and asset values are reported. When projects are delayed or uncertain, developers may need to reassess whether capitalised costs can remain on the balance sheet.
If planning approval becomes doubtful, those costs may need to be written off to the profit & loss account. This can reduce profits, weaken balance sheets, and impact financial performance more broadly.
How do planning delays affect accounting treatment under UK standards?
Planning delays can trigger changes in accounting treatment, particularly around cost capitalisation and impairment. Costs such as design, legal and environmental work are often capitalised when a project is expected to proceed. If that expectation weakens due to planning uncertainty, these costs may need to be expensed.
In addition, development land and work-in-progress must be reviewed for impairment if there are indicators that value may not be recoverable, such as repeated planning refusals or political resistance.
What happens to borrowing costs if a development project stalls?
If development activity slows significantly, borrowing costs such as interest may no longer be eligible for capitalisation. Accounting standards require interest to be expensed when there is a prolonged pause in active development. This can reduce profitability in the short term and may also affect compliance with loan covenants.
Developers need to monitor project activity closely and maintain clear evidence of progress to support continued capitalisation where appropriate.
Can planning delays create tax issues for property developers?
Yes, planning delays can have knock-on tax implications, particularly in relation to interest deductibility.
Capitalised interest may be recognised for tax purposes in later periods, potentially increasing exposure under the Corporate Interest Restriction (CIR) rules. If appropriate elections are not made early, developers may face higher effective tax costs in future years. Tax planning is therefore closely linked to project timing and financing structure.
How do fragmented councils increase planning risk?
Fragmented councils, where no single party has overall control, tend to rely on coalitions or minority administrations. This often leads to more cautious decision-making, especially in the early stages of a new administration. Planning committees may be more sensitive to objections, more likely to defer decisions, and less consistent in outcomes. This creates uncertainty around timelines and increases the risk that projects will be delayed or reshaped.
What are the key warning signs that a development project may need an impairment review?
Common indicators include repeated planning refusals, significant delays in decision-making, shifting local political priorities, or strong and sustained community opposition. These factors may reduce the expected value of the development or the likelihood of completion. Where this happens, developers may need to write down the value of land or work-in-progress to reflect lower recoverable amounts, which can have a material impact on financial statements.
How are developers structuring projects to manage planning risk more effectively?
Developers are increasingly using structures that limit exposure to planning uncertainty. This includes option agreements, conditional contracts, and ringfenced special purpose vehicles (SPVs) to isolate risk within individual projects. Alongside this, many are adopting more conservative accounting policies, strengthening cashflow forecasting, and making early tax elections to manage future liabilities. These approaches help protect group balance sheets and improve resilience.
Is public opposition really a major factor in planning delays?
Yes. While not always representative of wider community views, a small number of organised objections can significantly influence planning outcomes. Councillors may give weight to loudly-voiced local concerns, particularly in politically sensitive or closely contested authorities. Limited early engagement by developers can make this worse, leading to more objections and increased likelihood of deferrals. Effective stakeholder engagement is therefore a key part of managing planning risk.
What should developers and property-backed businesses be doing now?
Developers should treat planning risk as a core financial and strategic issue, not just a regulatory hurdle. This means regularly reviewing capitalisation assumptions, monitoring impairment indicators, stress-testing cashflow forecasts, and assessing covenant headroom.
Early engagement with advisers, across planning, tax, and accounting, can help identify risks sooner and put mitigation strategies in place. Taking a proactive, joined-up approach is essential in a less certain planning environment.
