Ironing out additional dwelling supplement

Additional dwelling supplement (ADS) is an LBTT supplement introduced on 1 April 2016. It applies to the purchase of additional residential properties in Scotland, such as second homes or buy-to-let properties, worth £40,000 or more. The ADS rate is 3% of the total purchase price of the additional property.

One of the main exemptions to the tax is main residence relief, where the ADS is not payable provided certain criteria were met; however, there was an anomaly that significantly affected couples jointly buying a new main residence. If, prior to the purchase, the couple sold a property that both of them lived in but was only owned by one of them, the couple would not qualify for ADS relief. This was because both buyers were not replacing their main residence.

The Land and Buildings Transaction Tax (Additional Amount – Second Homes Main Residence Relief) (Scotland) Order 2017 amends the rules and ADS relief will now apply in the above scenario. The property sold must have been the main residence of the joint buyers.

A further change introduced by the order applies in situations similar to the one above, but where couples sell the previous main residence within 18 months of purchasing the new joint main residence. In this scenario, ADS is still payable at the time of purchase, but provided the property is sold within 18 months the couple will be able to reclaim the ADS paid on the new property.

The changes apply for transactions where the contract is entered into on or after 20 May 2017 and where the transaction completes on or after 30 June 2017.