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Changes to the Additional Dwelling Supplement (Second Homes Tax in Scotland)

January 16, 2023

The Scottish Budget announcement on 15th December 2022 revealed many changes, but one change which took property professionals by surprise was the immediate increase in the rate of Additional Dwelling Supplement (ADS), often known as ‘the second home tax’ from 4% to 6%. The increase was effective from 16th December 2022. This means the purchase of a buy to let property or a second home on or after that date will attract the higher 6% rate, unless the missives (i.e. the legal contract) were concluded on or before the announcement.

There follows a reminder of the general rules in relation to this tax.

What is Additional Dwelling Supplement (ADS) and when does ADS apply?

Additional Dwelling Supplement (ADS) is an additional amount of Land and Building Transaction Tax (LBTT) payable on the purchase of a second residence, such as a second home, holiday home or buy to let property in Scotland.

The rules in connection with ADS are complicated, but you will usually have to pay ADS when:

  • an individual buys a residential property in Scotland for more than £40,000 and they already own (or are deemed to have an interest in) one or more residential properties anywhere in the world; or
  • Joint purchasers buy a residential property in Scotland for more than £40,000 and any one or more of those purchasers already owns (or is deemed to have an interest in) one or more residential properties anywhere in the world.

If you can demonstrate that you are replacing your only or main residence then you may be exempt from ADS or you may be able to claim a refund at a later date.

It is important to highlight that spouses, civil partners and co-habiting couples are classed as ‘one unit’ for the purposes of ADS. This means if your spouse, civil partner or anyone with whom you are co-habiting already owns a property in their sole name and you purchase a property in your sole name, you would still be liable to pay ADS even if you do not own another property.

In addition, ADS apply to most purchases of residential properties by non-individuals, such as limited companies and certain trusts even if it’s a first property that is being purchased.

Given the complex rules in relation to ADS we recommend that you raise any queries about this tax with your Solicitor or other Tax Specialist as early as possible to ensure you have budgeted for payment of the correct amount of tax.  Failure to pay the correct amount on time can result in penalties and additional interest being charged by Revenue Scotland.

If you have any questions, please contact a member of the Blackadders Residential Conveyancing Team working in Aberdeen, Dundee, Edinburgh, Glasgow, Perth and across Scotland.

Nicola Burns

Nicola Burns

Director of Operations

Marketing Team

+44 1382 342217

The opinions expressed in this site are of the author(s) only and do not necessarily represent the opinions of Blackadders LLP.

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