It has now been over a year since the introduction of the Additional Dwelling Supplement which came into force on 1 April 2016.
The Additional Dwelling Supplement (ADS) is an additional amount of Land and Buildings Transaction Tax (LBTT). The current rate of ADS is 3% on the full purchase price and applies to purchases of:-
- Additional properties in Scotland, such as buy to let properties and second homes, with a value of £40,000 or more;
- Where, at the end of the effective date of the transaction (i.e. the date of entry), a purchaser owns more than one property and is not replacing their only or main residence.
The Scottish Government suggested at the outset that the creation of the ADS would raise £23million in the tax year 2016-2017. However, the figures from April 2016 to February 2017 disclosed that over £80million has been raised, with £25 million being raised in the first four months alone, far exceeding the Scottish Government's initial target.
The ADS may, at first, seem quite simple in that it would appear to apply only to the purchase of a second property. However, we have experienced a number of scenarios which highlight that the net and reach of the tax is much wider than first anticipated. Some potential pitfalls include:-
- Where people purchase a property jointly, if any of the purchasers already own an interest in another residential property, ADS will apply, even if the other purchaser does not own another property
- Inheriting an interest in a property whilst in the process of purchasing a first main residence
- If you have not settled the sale of your existing main residence at the time you settle the purchase of your new main residence (even if the sale settles a couple of weeks later), ADS will be payable and must be reclaimed once the first property has been sold, provided the sale settles within 18 months of the purchase of your new property
It is important to consider whether ADS will apply to your purchase, and where necessary seek legal advice, to allow you to take account of this when budgeting for your purchase.
If you have any questions about ADS or how it may apply to the circumstances of your own purchase, please contact our experienced team who will be happy to help.