Risks for Scottish Solicitors When Advising on Additional Dwelling Supplement (ADS)

April 1 2026 will be the tenth anniversary of the introduction of the Additional Dwelling Supplement ("ADS").

Although it has been part of the Land and Buildings Transaction Tax ("LBTT") landscape for nearly a decade, it continues to cause difficulty for practitioners and clients alike. Although commonly perceived as a simple surcharge on “second homes,” the underlying statutory framework is intricate and requires a considered application of a suite of statutory definitions, time limits and deeming provisions.

The scope for misapplication or misinterpretation of ADS provisions can create significant professional risk for solicitors. 

Statutory Framework and Sources of Complexity

The relevant provisions are contained within the Land and Buildings Transaction Tax (Scotland) Act 2013 (“the 2013 Act”), as amended by the Land and Buildings Transaction Tax (Amendment) (Scotland) Act 2016 (the 2016 Act") and successive amending orders. 

In broad terms, for an individual, ADS is chargeable if, at the end of the day that is the effective date of a transaction, the purchaser owns (or is deemed to own) two or more dwellings and is not replacing their only or main residence. ADS considers the 'effective date' to be the day the liability to LBTT arises (typically date of settlement or completion). While this test may appear straightforward, several statutory features require careful consideration.  

Firstly, “ownership” is defined broadly for the purposes of the ADS provisions. Ownership can extend beyond what is stated on the legal title and includes beneficial interests, pro indiviso shares, interests held through bare trusts, and overseas dwellings owned or part owned by the purchaser. These interests must be identified by the solicitor even though they may not feature as part of the transaction in which they are instructed. 

Secondly, the replacement-of-main-residence exemption (which prevents ADS being charged in the first place) is structured in two parts and requires both (i) prior disposal of a previous main residence within the statutory prescribed period and (ii) an intention to occupy the new property as the purchaser's only or main residence. In practice, both elements can be contentious. Clients frequently underestimate the importance of the precise dates of occupation and disposal, or misunderstand the relevance of periods during which a property was let or unoccupied but nevertheless still 'owned' by them. Amendments to the disposal before purchase timing rules—most recently extending the disposal window to 36 months prior to the effective date—further complicate matters. 

Thirdly, the statutory framework contains several deeming provisions that need to be considered and that clients may not realise are relevant to their transaction. Spouses and civil partners living together on the effective date are treated as a single economic unit for ADS purposes. Consequently, one partner’s interest in a dwelling can create ADS liability for both. Similarly, some beneficial interests arising through inheritance can constitute ownership. As a result, clients’ assumptions about whether they “own” property may not align with the legal position.

Common Pitfalls 

Misapplication of Rules for Reclaiming ADS 

Errors frequently arise where clients assume, or are incorrectly advised, that they can claim ADS repayment simply because they have purchased a new home and intend to sell their previous one. The statutory conditions require more than future intention: the previous property must have been the client’s only or main residence at a relevant time and must be disposed of within 36 months of the effective date. A home used intermittently, or converted to a rental property for a lengthy period before sale, may fall out with the definition.

Correct sequencing is also vital. A sale occurring outside the prescribed period, even if only by a few days, defeats the claim. Moreover, a refund claim must be submitted within 5 years of the effective date. The law is applied strictly, and the legislation provides no discretion for Revenue Scotland or the Property Tribunal to consider special circumstances, such as temporary absence or other extenuating factors. 

Overlooked Ownership Interests

Many ADS complications arise from ownership interests that a client inadvertently does not make their solicitor aware of. The statutory definition does not distinguish material from immaterial interests; any qualifying interest counts. When advising on a property purchase a solicitor should therefore conduct a comprehensive information gathering exercise from the client to ensure that all potentially relevant interests are identified and considered. 

Inadequate Documentation

Disputes often emerge only at the point where an ADS refund is sought, sometimes years after a purchase completed. Given this is the case, solicitors must ensure that they adequately record the basis of their interpretation / advice for future reference. The solicitor's file should specify the factual basis on which the statutory tests were applied to protect against any challenge to the advice given and decision taken. An absence of file notes relating to such advice could affect a solicitor's ability to defend any negligence claim. 

Consequences of Incorrect Advice or Failure to Advise

The financial consequences that arise from misinterpretation of the ADS provisions are often significant. Incorrect advice can produce considerable unanticipated tax liabilities, Revenue Scotland refusing expected refunds, and exposure to penalties. In some instances, an oversight may jeopardise completion funding and put the transaction at risk. 

For solicitors, the professional risks include complaints to the Scottish Legal Complaints Commission and potential claims under the Master Policy. Where a solicitor fails to advise (correctly or at all) on ADS and the client suffers financial loss—such as paying the supplement unnecessarily or failing to secure repayment—the client may claim that the solicitor breached their contractual and/or delictual duty of care. These claims are particularly difficult to manage where the file does not clearly record the advice given or the assumptions made. Even where the client provided incomplete or potentially inaccurate information, insufficient documentation can make it difficult to demonstrate that the solicitor exercised appropriate diligence.

Mitigating Risk

The solicitor should clarify at the outset of the transaction the scope of tax advice they intend to provide. Many clients assume their solicitor will provide comprehensive tax advice; however, many firms intend only to advise on the application of ADS to the transaction, and not on wider tax planning. 

Including clear wording in the firm's Letter of Engagement setting out what tax advice will or will not be provided can provide valuable clarity and understanding for the client in terms of the scope of work to be carried out for them. This can in turn, reduce exposure to claims. However, it is important to ensure that an exclusion of certain advice is sufficiently clear. An unreasonably wide, ambiguous, or poorly explained exclusion of certain advice could itself cause misunderstandings or incorrect assumptions.  

Equally important is comprehensive fact finding. Firms should probe clients for all categories of ownership—legal and beneficial—along with occupation history, disposal plans, and overseas assets. The answers, and their responses, should be clearly documented and recorded in the file, along with the solicitor's resulting ADS advice. 

Building these steps in to each transaction will certainly help to mitigate the risks when advising on ADS.

Stuart Craig and Lynne Cardow 
DAC Beachcroft Scotland LLP