Additional dwelling supplement A SIMPLE GUIDE

Land and Buildings Transaction Tax (LBTT) was introduced in Scotland in 2015, replacing SDLT (Stamp Duty Land Tax) as a fully devolved tax, following the passage of the Scotland Act 2012 and the Land and Buildings Transaction Tax (Scotland) Act 2013.

Additional Dwelling Supplement (ADS) was introduced the following year. Unlike LBTT, which is chargeable in bands, ADS is a ‘slab tax’, meaning it is payable on the entire purchase price, unless the property is worth £40,000 or less.

The rate of ADS was originally 3%, and was increased to 4% in 2018. In the Scottish Budget of December 15th 2022 it was announced that this would increase to 6% and somewhat dramatically came into force with effect from the very next day, December 16th 2022.

Understandably, many home buyers are anxious about their liability towards this tax, which can add many thousands of pounds onto their standard LBTT liability. As agents we are often asked questions about it, and so it may be helpful to you to answer a few of the common ones here:

I am going to buy a house to use as my main residence. Do I have to pay ADS?

If you don’t already own a main residence and do not own any other property, then you are not liable for ADS, but you will still have to pay the LBTT due.

I am buying a second home/holiday let/buy-to let property. Do I have to pay ADS?

The simple answer here is yes. If you already own a property here in the UK or indeed anywhere in the world, you will be liable to pay ADS.

I sold my house, and am living in a rented property, but I also own a buyto-let property. When I buy my next home, am I liable to pay ADS?

If you sold your home within the 18 months prior to the transaction date of your new purchase, you will not be liable to pay ADS. You are simply replacing your main residence. If, however, you haven’t owned a main residence for more than 18 months, then you will be liable to pay

I haven’t sold my house yet, but I have found another I want to buy and live in it as my main residence. Am I going to have to pay ADS?

Yes. However, if you sell your original home within 18 months of the date of purchase of your new home, you will be eligible for repayment of the amount of ADS you paid.

Our home is in my spouse’s name only. If we buy another property in my name only, surely we avoid paying ADS?

Spouses, civil partners, co-habitants and dependent children are all treated as being one economic unit, so in this case you would be defined as owning the first property and therefore liable to pay ADS on the property being purchased.

As we go to press, a draft Statutory Instrument is being prepared by the Scottish Government which may implement extending the 18 month time limits to 36 month periods. However, this is very provisional and it will be Summer 2023 at the earliest before a final version Statutory Instrument is laid before the Scottish Parliament, and may be some time after that before it becomes law.

We would always advise you to consult with your Scottish solicitor in advance of offering for a property if you think you may be liable for Additional Dwelling Supplement. n