Do holiday lets and a farmhouse count for Scottish ADS when buying a main home?

Introduction

People often search for this issue when they own holiday accommodation, mixed-use property or a farm, and want to buy a home in Scotland. The difficulty is that Scottish Additional Dwelling Supplement, usually called ADS, does not simply follow business rates treatment, planning labels or even the way a property was treated for SDLT in England.

The real question is usually whether the buyer already owns one or more “dwellings” at the end of the purchase day, and whether the new purchase is replacing the buyer’s only or main residence. That can produce unexpected results where a person owns furnished holiday lets, licensed short-term lets, a farmhouse, or land with accommodation units.

The Question

A buyer plans to purchase a property in Edinburgh for around £500,000 as their future main home. They already own, in their own personal name:

• a holiday let in Scotland which is licensed and assessed to business rates;
• another holiday let in England which is also assessed to business rates and had previously received SDLT treatment based on business use; and
• a farm in England with a farmhouse and holiday accommodation units.

The buyer wants to know whether ADS must be paid on the Edinburgh purchase, whether any of the existing properties can be ignored because they are run commercially, and whether ADS could later be reclaimed if the farmhouse is sold after the Edinburgh purchase.

Nick’s Explanation

Nick’s core point was that ownership structure matters first. If properties are owned personally, they are counted personally. If a separate limited company buys a dwelling, the company is treated as a separate buyer.

He explained the position in substance as follows:

• holiday lets held personally will usually still count as dwellings for ADS purposes if they are suitable for use as dwellings;
• being on business rates does not stop a property being a dwelling for ADS;
• a previous SDLT refund or mixed-use SDLT treatment in England does not bind Revenue Scotland;
• if the farmhouse is genuinely the buyer’s current main residence, ADS paid on the new Edinburgh purchase may be reclaimable if the farmhouse is sold within the statutory time limit after the purchase; and
• if a limited company buys the Edinburgh property, the company’s purchase would generally still attract ADS automatically, and there is no replacement of main residence relief for companies.

Nick also noted an important practical warning: if a person sells the farmhouse but keeps too much of the dwelling’s gardens or grounds, Revenue Scotland may argue that the old main residence has not been fully disposed of for reclaim purposes.

The Law

The starting point is the Land and Buildings Transaction Tax (Scotland) Act 2013 and the Additional Amount – Transactions Relating to Second Homes etc. (Scotland) Order 2016.

Under section 59(1)(a) of the 2013 Act, residential property includes “a building that is used or is suitable for use as a dwelling”. That definition is central. It focuses on the character and suitability of the building, not just how the owner uses it for tax or business purposes.

Under Schedule 2A to the 2016 Order, ADS generally applies where:

• the buyer acquires a dwelling in Scotland;
• at the end of the day of the transaction the buyer owns another dwelling anywhere in the world; and
• the new purchase is not a replacement of the buyer’s only or main residence.

For replacement of a main residence, the rules allow relief or, in some cases, a later reclaim where the former only or main residence is disposed of within the statutory period. Nick referred to the 36-month period applying from 1 April 2024.

In practice, Revenue Scotland looks closely at factual residence: where the person actually lived, where their settled home was, and whether the former main residence has genuinely been disposed of.

Where an argument is made that a property was not suitable for use as a dwelling, the threshold is now relatively high following Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799. Although that was not an ADS case, it reinforces the wider point that a property will not easily fall outside dwelling treatment merely because it needs work, is used commercially, or has some restrictions on occupation. A true lack of suitability must usually be substantial.

Analysis

The position can be worked through in stages.

First, the existing properties are owned personally. That means they are part of the buyer’s personal property position for ADS purposes. If they had been owned by a separate company, that would be a different analysis, but here they are not.

Second, each existing property must be tested as a dwelling.

• The Scottish holiday let is licensed and on business rates, but that does not stop it being a dwelling if it remains suitable for normal residential occupation. Most holiday cottages and short-term lets still satisfy that test.
• The English holiday let may have received different SDLT treatment, but Scottish ADS uses its own statutory framework. Revenue Scotland is not bound by HMRC’s earlier SDLT view.
• The farm is mixed-use, but the farmhouse is plainly capable of being a dwelling. Depending on the facts, other accommodation units may also count, though the farmhouse alone is enough to create a dwelling interest in most scenarios.

Third, because the buyer already owns other dwellings, the Edinburgh property would normally attract ADS unless it is replacing the buyer’s only or main residence.

Fourth, the key factual issue becomes the farmhouse. If the buyer has genuinely lived there as their home for several years, that strongly supports the farmhouse being their current only or main residence. If so, buying the Edinburgh property as the next main residence may qualify for a later ADS reclaim if the farmhouse is sold within the permitted 36-month period.

Fifth, the sale must be a real disposal of the former main residence. That is where boundaries matter. If the buyer keeps the house but sells only some land, there is no disposal of the residence. If the buyer sells the house but retains land that still forms part of the house’s gardens or grounds, Revenue Scotland may dispute whether the former residence was fully disposed of. This needs careful conveyancing and fact-specific analysis.

Sixth, buying through a limited company does not usually solve the problem in the way buyers hope. A company is a separate legal person, so the individual’s existing dwellings do not count as the company’s dwellings. However, company purchases of dwellings generally attract ADS automatically, and companies cannot claim replacement of main residence relief. Nick correctly highlighted that this route can also create personal tax issues, including Benefit in Kind concerns if the individual uses the company-owned property personally.

Seventh, temporary commercial use of the Edinburgh property, such as short-term letting before moving in, may complicate the factual picture of whether and when it becomes the buyer’s main residence. That does not automatically prevent a reclaim, but it makes the evidence more important.

Outcome

On these facts, ADS is likely to be payable on the Edinburgh purchase at completion if the buyer purchases personally and still owns the other properties.

However, if the farmhouse is in fact the buyer’s current only or main residence, and it is fully disposed of within 36 months after the Edinburgh purchase, there is a realistic basis for reclaiming the ADS.

The commercial nature of the holiday lets, their business rates status, and earlier SDLT treatment elsewhere do not by themselves prevent those properties from counting as dwellings for Scottish ADS.

Buying through a limited company is not usually a tax-free workaround. A company buying a dwelling generally suffers ADS anyway, and the route can create further tax and compliance issues.

Practical Steps

A buyer in this position should usually take these steps before exchange or completion:

1. List every property interest owned personally and through any companies or trusts.
2. Identify which property is, on the facts, the current only or main residence.
3. Gather evidence of main residence status, such as council tax records, electoral registration, utility bills, insurance, correspondence address and actual occupation history.
4. Review whether any existing property is genuinely not suitable for use as a dwelling. This should be approached cautiously, especially after Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799, because the threshold is now relatively high.
5. If planning to reclaim ADS after selling a former main residence, ensure the sale documentation clearly disposes of the dwelling itself and does not leave avoidable doubt over retained gardens or grounds.
6. Do not assume that business rates, licensing status, planning restrictions or HMRC SDLT outcomes will determine the Scottish ADS result.
7. Obtain coordinated advice from a Scottish LBTT specialist and, if a company purchase is being considered, from a corporate and employment tax adviser as well.

Conclusion

If you own holiday lets and a farmhouse personally, those properties will often still count as dwellings for Scottish ADS. In that situation, buying a new home in Scotland usually triggers ADS unless you are replacing your only or main residence. Where a farmhouse is your genuine current home, a later reclaim may be available if it is properly sold within the 36-month window. The main trap is assuming that commercial use or business rates treatment takes a property outside the dwelling rules. Usually, it does not.

Legal References Used

• Land and Buildings Transaction Tax (Scotland) Act 2013, section 59
• Additional Amount – Transactions Relating to Second Homes etc. (Scotland) Order 2016, Schedule 2A
• Amarjeet and Tajinder Mudan v The Commissioners for HMRC [2025] EWCA Civ 799

This page was last updated on 22 March 2026.

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