Additional Dwelling Supplement Changes Take Effect

On 1 April 2015, Land and Building Transaction Tax (LBTT) replaced Stamp Duty in Scotland. 

How is LBTT charged?

The system of tax on the purchase of property in Scotland changed from a flat rate banded tax to a progressive tax. Different percentages apply to different band levels. The current LBTT charges for residential properties are as follows:

Purchase price	LBTT rate
Up to £145,000	0%
£145,001 to £250,000	2%
£250,001 to £325,000	5%
£325,001 to £750,000	10%
Over £750,000	12%

There is also a concession for first-time buyers who do not need to pay LBTT on any purchase up to a value of £175,000.

What is the Additional Dwelling Supplement?

On 1 April 2016, the Scottish Government introduced an additional LBTT charge. The Additional Dwelling Supplement (ADS) applies where someone purchases an additional residential property. This charge also applies to companies and other organisations. It was implemented following similar provisions in England, Wales and Northern Ireland where Higher Rate for Additional Dwellings (HRAD) as introduced and became effective on the same date.

The purpose of both ADS and HRAD was to help first-time buyers compete in a market where buy-to-let purchasers were forcing up the price of the typical first-time buyer type properties.

Initially, the ADS was charged at a rate of 3% on the full price of the property (where the purchase price is in excess of £40,000). This charge is in addition to any LBTT due on the purchase.

The ADS was increased to 4% on 25 January 2019 and was again increased to its current rate of 6% on 16 December 2022.

What changes have been introduced?

There were certain anomalies following the introduction of the ADS. For instance, if you bought a new house as your main residence but could not sell your current house, you had to pay the ADS on your new purchase. Subsequently, a change was introduced allowing buyers who were affected by this to reclaim the ADS paid. However, the time allowed to make the reclaim was restricted to 18 months.

ADS Reclaim period extended to 36 months

The period allowed to enable someone who could not sell their previous main residence when purchasing their new main residence has been increased from 18 months to 36 months from the date of payment of the ADS.

Reclaim where one party owned a property prior to a joint main residence purchase

Where a couple buy a new main residence together for the first time, if one of that couple previously owned another house as their own main residence, that person now has 36 months within which to reclaim the ADS.

Divorce and Separation

Additional Dwelling Supplement issues also arose where a couple separated and, as part of the separation agreement or as a result of a court decree, one of the parties remained in the family home but the title remained in the joint names of the party. This meant that when the person who had moved out of the house bought a new house for themselves, they had to pay the ADS. This, however, has changed and anyone falling into that category will no longer have to pay the ADS, provided they are able to provide evidence by way of a court decree or signed and registered separation agreement. This brings the rules into line with those applying in England, Wales and Northern Ireland.

Inherited properties

Where you inherit a property but are buying a new house, if you still retain ownership of the inherited property, you will need to pay the ADS. There is, however, limited relief should you be in the course of buying a new house with missives concluded but have not yet reached the date of entry when the title to the inherited property is transferred into your name.

Small shares in property

If you own a share in a property and your share is worth less than £40,000, you can claim an exemption from the ADS. This, again, brings the law into line with the law in England, Wales and Northern Ireland.

Specialist property lawyers in North Berwick and Dunbar, East Lothian

Our solicitors deal with all aspects of buying and selling both residential and commercial properties throughout East Lothian, across Edinburgh and across Scotland. If you would like any advice on any aspect of buying or selling a property, including LBTT or ADS, please get in touch with us.