If you intend to buy a second property or land in Scotland and wish to own two dwellings, you will need to pay an addition to any LBBT and be aware when ADS applies to you. If you are going to buy a residential property or a holiday home, you might want to consult a solicitor who can help you understand when ADS is payable and cases of exemption as well. Our solicitors at Clarity Simplicity can help you buy a new home and navigate the tax on the purchase.
What is an additional dwelling supplement?
According to the Scottish government, any Land and Buildings Transaction Tax (LBTT) that may be owed is increased by the ADS fee. If you purchase an additional residential property (dwelling) in Scotland, you will be taxed.
An additional residential property example might be:
- an extra house
- a place to rent
- a place for relatives or friends, even if you don’t charge rent for a vacation property
When does the ADS as part of land and buildings transaction tax apply?
The Scottish budget states that typically, you’ll be liable to pay ADS when:
- If there are two or more buyers, you buy an additional residential property in Scotland and you already own one or more residential properties anywhere in the world
- You are not replacing or selling your “only or main” dwelling if any buyer already owns one or more homes anywhere in the world.
- Only residential properties with a value of £40,000 or more are included in the calculation.
The ADS is applicable to the majority of non-natural Scottish persons, often known as non-individuals, such as corporate entities, businesses, and some trusts, that purchase residential real estate in Scotland.
When does the ADS not apply?
The ADS does not apply in these scenarios:
- you only own one home as of the effective date, and it is worth less than £40,000
- you are replacing a main residence during the 18-month period prior to the purchase of your new primary residence.
Can I claim repayment for ADS after I pay the land and buildings transaction tax?
You may be eligible for a refund payable if:
- a) sell your previous main residence within 18 months of purchasing the new one;
- b) at any point during the 18 months prior to purchasing the new home for which you paid the ADS;
- c) have lived in the new home for which you paid the ADS as your sole or main residence
If every buyer has followed these instructions, a repayment claim may be lodged. There are unique regulations for couples, civil partners, and roommates where just one buyer needs to meet points a) but both must meet b) and c).
How to pay or claim an ADS repayment
Along with your Land and Buildings Transaction Tax (LBTT), the ADS is calculated. You pay it along with your LBTT and include it on your LBTT return. Depending on whether you are claiming it as a Scottish taxpayer or employing an agent to claim it on your behalf, there are various ways to claim an ADS reimbursement. A solicitor can help you understand everything you need to know about the devolved taxes for additional properties introduced by the Scottish parliament.
ADS rates and interest for your second home
The ADS that you need to pay is 6% of the purchase price for deals that closed on or after December 16, 2022. The ADS is 4% of the purchase price for transactions that took place on or after January 25, 2019. Prior to January 25, 2019, the ADS for transactions was 3% of the purchase price.
Draft LBTT returns
If you began drafting a tax return before December 16, 2022, for:
- The draught can be submitted for a tax return whose effective date is 15 December 2022 or earlier because the ADS will have been determined to be 4%.
- For the system to update the ADS to calculate at 6%, a tax return with an effective date of 16 December 2022 or after must be recalculated.
- If the contract was signed before December 15, 2022, and the tax return’s effective date is December 16, 2022, or later, please check the calculation. If necessary, you can manually adjust the SETS calculation by clicking “Edit transaction details” in the return’s “About the transaction” section.