Taking effect from 16th December 2022, the rate of Additional Dwelling Supplement (ADS) tax increased from 4% to 6%.
This is often known as “the second home tax”, where it accounts for the full purchase price of a “second home”.
Here is a brief reminder of the general rules in relation to this tax.
What is Additional Dwelling Supplement (ADS) tax and when does it apply?
Additional Dwelling Supplement (ADS) tax is an additional amount of Land and Building Transaction Tax (LBTT) payable on the purchase of a residential property (not land only and not commercial), such as a holiday home, second home or buy to let property in Scotland. It does not apply if you are buying your first home to live in or replacing your home with a new principal home.
The rules in connection with ADS are complicated, but you will usually have to pay ADS when:-
(1) 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
(2) joint purchasers buy a residential property in Scotland for more than £40,000 and any one or more of those purchasers already own (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. However, there is a limited time period of 18 months which you can claim a refund.
It is important to highlight that spouses, civil partners and co-habiting couples are classed as ‘one unit’ for the purposes of ADS tax. 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.
Given the complex rules in relation to ADS tax, 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.
The private client team at TC Young can assist.
