Background
The Land and Buildings Transaction Tax (LBTT) replaced Stamp Duty on the purchase of residential and commercial land and property transactions in Scotland in 2015. In 2016, the Additional Dwelling Supplement (ADS) was introduced, as a supplementary tax to the LBTT, for buyers purchasing property in addition to their primary residence. On introduction, the ADS rate was 3% on the "relevant consideration" (purchase price). However, the duty has subsequently increased to 4%, as of January 2019.
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The ADS applies if you already own, or are treated as owning, another dwelling anywhere in the world with a value of at least £40,000. The ADS is payable on the total purchase price (i.e. not just the amount over £40,000) on an additional residential property purchase costing £40,000 or more. It is in addition to LBTT. Similarly, any house already owned must be worth £40,000 or more for the ADS to apply.
What is the Purpose of the ADS?
The ADS is primarily designed to target those buying holiday homes, buy-to-let properties or second homes. It is similar to a supplement introduced in England and Wales. In addition to raising revenue, the underlying policy reason for the ADS is to benefit first-time buyers; increasing the availability of affordable property on the market, by discouraging second home buyers from purchasing property which arguably puts upward pressure on house prices. However, the ADS can be complex and can have an impact in unexpected ways. It is highly recommended that you seek professional legal advice to discuss any potential issues the ADS may cause during the purchase of your property.
The Complexities of the ADS
It is important to obtain advice when acquiring an additional property and individual circumstances can be complicated as illustrated by some examples below.
You may be in the unfortunate situation where your sale is delayed, but if you want or need to continue with your purchase on the agreed date, you will have to pay the ADS on the purchase and then reclaim it afterwards when you eventually sell your property. On a £300,000 house, this means finding an extra £12,000 (in addition to £4,600 LBTT) which can be prohibitive. Moreover, if the previous main residence is sold after a period of 18 months, no repayment can be claimed even if the only reason is because of a difficult selling market.
It may also apply in cases where individuals are separating. For instance, you may be involved in a matrimonial separation and be attempting to purchase a separate home. If your name is on the title to the matrimonial home (regardless of whether or not you have moved out) you may be liable for the ADS on the new purchase.
An individual buying an additional property for a non-dependent child will be liable to pay the ADS unless title to the additional property is in the name of the child only.
Exemptions and Reliefs from the ADS
ADS will not apply where the main residence exception applies. Couples jointly buying a new main residence to replace a former main residence, where title to the former home is in the sole name of one of the partners, will qualify for relief from the ADS.
There is also a specific relief from the ADS for portfolio purchases, of six or more dwellings, as part of a single or linked transaction if they are all in Scotland. Such purchases will not be subject to the ADS if the relief is claimed.
The same exemptions that apply to LBTT generally apply to the ADS, such as the transfer of a house through divorce proceedings. The application of the ADS is complicated, therefore, at Claphams our experienced and skilled solicitors will be able to review your circumstances to ensure you are not paying the ADS where an exemption or relief is, or could be, applicable.
Contact our Residential Conveyancing Solicitors in Clarkston, Newton Mearns, Giffnock, Netherlee, Eaglesham, Carmunnock, Stewarton & Southside Glasgow
The ADS can be difficult to understand and can apply in unexpected circumstances. If you have any questions about the ADS and how it might apply to your property purchase or any other related queries, please get in touch with our team of specialist and experienced solicitors on 0141 620 0800 or make an online enquiry.
