Additional Dwelling Supplement (ADS) Update

The beginning of this month brought a significant amendment to the existing rules regarding Additional Dwelling Supplement. Property owners replacing their main residences now have 36 months to do so, previously 18 months.  

What is ADS?

Additional Dwelling Supplement was introduced to Scotland in April 2016 and imposed a supplemental property tax following similar taxes brought into effect in the rest of the UK.  The additional tax applies where anyone purchases a property which results in that person owing more than one property at the same time. Commonly referred to as a second home tax, the result is a 6% charge on the purchase price. This is in addition to the usual Land and Buildings Transaction Tax payable at completion.

Main Residence Exemption

There are limited exemptions to ADS. The principal one being replacement of a main residence. No matter how many properties a person owns, that person is entitled to move their permanent residence without being liable to pay the 6% charge. Therefore, provided a main residence is replaced on or before the day the new purchase completes, there is no ADS payable.

The issue arises where a simultaneous sale and purchase does not occur on the same day and ADS applies. In such cases, the buyer must pay ADS on the purchase price of their new property. However, provided they can sell their (now previous) main residence within 18 months of concluding missives of the purchase, ADS may be reclaimed from Revenue Scotland (with interest). This change from 1 April 2024 means this 18 month period is extended to 36 months, affording buyers additional time to sell their previous residences in order to reclaim ADS paid at the time of purchase. This is a welcome amendment which brings Scotland in line with the timescales imposed in the rest of the UK. It should be noted that the change is not retrospective. If missives are concluded to purchase a new main residence prior to 1 April 2024, the buyer still only has 18 months to sale the previous residence and reclaim ADS.

When determining the number of properties owned for the purposes of ADS, spouses and cohabitants are treated as one. Therefore, it is not possible, if one spouse or cohabitee already owns a property, for the other spouse or cohabitee to acquire the second property in their sole name. For ADS, both spouses or cohabitants will be treated as owning the first property and ADS will be payable on the second purchase, regardless if legal title is taken in the name of one or both spouses or cohabitants.

ADS should be considered when purchasing property in Scotland and our property specialists at J & H Mitchell WS are on hand to provide advice. Please contact one of our property lawyers for further information.