Revenue Scotland LBTT: Overview of Additional Dwelling Supplement in Scotland’s Land and Buildings Transaction Tax.

Additional Dwelling Supplement (ADS) Overview

The Additional Dwelling Supplement (ADS) was introduced by Revenue Scotland on 1 April 2016. It was established through primary legislation by adding Schedule 2A to the Land and Buildings Transaction Tax (Scotland) Act 2013. This move was in response to the UK’s Higher Rates for Additional Dwellings (HRAD) for Stamp Duty Land Tax (SDLT).

• Implemented to address additional dwelling purchases.
• Part of Land and Buildings Transaction Tax (LBTT).
• Similar measures introduced in Wales in 2018.

Understanding the Additional Dwelling Supplement (ADS) in Scotland

The Additional Dwelling Supplement (ADS) is a tax introduced by Revenue Scotland on 1 April 2016. It was established through primary legislation by adding Schedule 2A to the Land and Buildings Transaction Tax (Scotland) Act 2013. This initiative was a response to the UK Government’s introduction of Higher Rates for Additional Dwellings (HRAD) to Stamp Duty Land Tax (SDLT) in England, Wales, and Northern Ireland. Wales later introduced a similar arrangement as part of the Land Transaction Tax (LTT) in April 2018.

What is the Additional Dwelling Supplement?

The ADS is an additional tax applied to the purchase of residential properties in Scotland when the buyer already owns one or more residential properties. This tax is part of the Land and Buildings Transaction Tax (LBTT) framework, which replaced the UK Stamp Duty Land Tax in Scotland in 2015. The ADS is designed to target those purchasing additional properties, such as buy-to-let investors or individuals buying second homes.

Why Was ADS Introduced?

The introduction of the ADS was primarily to address the housing market’s dynamics, ensuring that first-time buyers and those purchasing their primary residence have a fair chance in the property market. By imposing an additional tax on those buying extra properties, the Scottish Government aimed to deter speculative buying that could drive up property prices and limit the availability of homes for those looking to buy their first home.

How Does ADS Work?

The ADS applies when an individual or company purchases a residential property in Scotland and already owns one or more residential properties anywhere in the world. The tax is calculated as a percentage of the purchase price of the additional property.

Current ADS Rate

As of the latest update, the ADS rate is set at 4% of the total purchase price of the additional property. This means if you purchase a second home for £200,000, you would be liable to pay an additional £8,000 as ADS.

Examples of ADS Application

• Example 1: Jane owns a flat in Edinburgh. She decides to buy a holiday home in the Highlands for £150,000. Since she already owns a property, she will pay 4% ADS on the new purchase, amounting to £6,000.
• Example 2: A property investor buys a second flat in Glasgow for £300,000. The investor will pay 4% ADS, which totals £12,000.

Exemptions and Reliefs

While the ADS is broadly applied, there are certain exemptions and reliefs available under specific circumstances.

Exemptions

Some transactions are exempt from ADS, including:

• Purchases of properties under £40,000.
• Transactions where the buyer is replacing their main residence and sells the previous main residence within 18 months.

Reliefs

There are also reliefs available that can reduce the amount of ADS payable. For instance, if a buyer purchases a new main residence but cannot sell their previous main residence immediately, they may be eligible for a refund of the ADS if they sell the previous property within 18 months.

Impact on the Property Market

The introduction of the ADS has had a noticeable impact on the Scottish property market. By increasing the cost of purchasing additional properties, the tax has influenced the behaviour of property investors and second-home buyers.

Effect on First-Time Buyers

One of the intended outcomes of the ADS was to make the property market more accessible to first-time buyers. By reducing competition from investors and second-home buyers, first-time buyers may find it easier to secure properties at more affordable prices.

Investor Considerations

For property investors, the ADS represents an additional cost that must be factored into investment decisions. This may lead some investors to reconsider their strategies or focus on different types of investments that are not subject to the ADS.

Conclusion

The Additional Dwelling Supplement is a significant component of Scotland’s property tax framework, aimed at promoting fairness in the housing market. By understanding how the ADS works, buyers can make informed decisions when purchasing additional properties. For more detailed information on the ADS, including legislation and guidance, visit the Revenue Scotland website.

Useful article? You may find it helpful to read the original guidance here: Revenue Scotland LBTT: Overview of Additional Dwelling Supplement in Scotland’s Land and Buildings Transaction Tax.

View all LBTT Guidance Pages Here