What is the Additional Dwelling Supplement (ADS)?
ADS is an additional amount of Land and Buildings Transaction Tax (LBTT) payable on the purchase of a second residence in Scotland, e.g. a second home or a buy-to-let property. This additional amount of LBTT was only introduced relatively recently, in 2016.
At present, ADS is charged at 3% of a transaction’s “relevant consideration”. For residential property transactions, the relevant consideration will be the purchase price. However, ADS does not apply to all transactions. Among other exceptions, ADS is only applicable if the relevant consideration is £40,000 or more.
The rules that apply to ADS are complex – for more information, see our article on the introduction of ADS here.
What is changing?
The Scottish Budget for 2019/2020 was introduced to the Scottish Parliament by Derek Mackay, Cabinet Secretary for Finance, Economy and Fair Work on 12 December 2018. The Budget contains a proposal to increase ADS from 3% to 4% of the relevant consideration.
When will this change?
If the Scottish Budget is passed through Parliament, the change will take place from 25 January 2019. This means that for any property transactions on or after this date that qualify as an additional property, the purchaser will be subject to ADS at the increased rate of 4%.
How could this affect you?
If, for example, a second home is bought for £200,000 on 24 January 2019, before the increase comes into effect, ADS will be payable at a rate of 3% of the purchase price, totalling £6,000. This amount is in addition to any LBTT due on the transaction.
If the same property is bought for the same price on 25 January 2019 (i.e. once the increase has come into effect), ADS will be charged at 4% of the purchase price, amounting to £8,000.
While the amount of LBTT will remain the same, the increase in ADS will mean that, overnight, buyers may end up paying considerably more tax on the purchase of their second property.
Will there be any transitional arrangements?
A transitional period will be allowed under the new arrangement. If the effective date of the transaction (usually the day of completion, i.e. when money and keys change hands) is on or after 25 January 2019, but the contract for the transaction (i.e. missives) was entered into before 12 December 2018, ADS will only be charged at 3% of the purchase price.
At the time of writing, the Scottish Budget is still to be approved by Parliament, and an order, implementing these changes – The Land and Buildings Transaction Tax (Tax Rates and Tax Bands etc.) (Scotland) Amendment Order 2018 – has already been made.
It is however subject to what is known as "affirmative procedure", which means that unless it is approved by Parliament within 28 days of having been made (not counting the period during which Parliament is in recess) it will fall. Parliament is expected to vote on the Scottish Budget proposals in the coming weeks.
Accordingly, unless missives have already been concluded before 12 December 2018, purchasers of second homes may want to try to settle the purchase before 25 January 2019, where possible, to avoid having to pay the higher rate of ADS.
With additional reporting by Lucy Knox