Additional Dwelling Supplement (ADS) – are you liable to pay?

The Land and Buildings Transaction Tax (Amendment) (Scotland) Act 2016 (containing Additional Dwelling Supplement or “ADS” provisions) came into effect on 1 April 2016, adding an additional cost to buyers who purchase an ‘additional’ dwelling at a price over £40,000. The tax amounts to 3% of the total purchase price and the tax appears to have contributed to a decline in “buy to let” purchasers entering the market.

Consider the following examples which illustrate that whether ADS is payable is very much dependent on individual circumstances, and ADS applies in more situations than many of our clients may have been aware.

Example 1

Where you do not own any dwelling but your partner (spouse, civil partner or cohabitee) does then you may have been under the mistaken belief that since you do not own a dwelling yourself, the ADS does not apply to you and you can purchase your own buy-to-let flat. However under the rules of “deemed ownership” it is deemed that you and your partner are treated as one ‘economic unit’ and you will potentially be liable for the ADS on the purchase of a new property.

The Scottish Government has felt that this rule ensures that couples cannot complete simple transfers of title in order to purchase multiple properties without paying the ADS tax liability.

Example 2

Where you own multiple dwellings and are selling your main dwelling (your primary residence) and you are replacing this with a same day purchase of your new main dwelling then even though you own other properties you will not be due to pay the ADS because you are replacing your main dwelling.  However, under the same example, if it was not your main residence that you were selling but another property you had, as you are not replacing your main residence then you will be liable for the ADS.  An example would be where you owned multiple buy-to-let flats and were selling a dwelling that you had let out and were buying a new dwelling for any reason. The tax is liable because you will own multiple dwellings but will not be replacing your primary residence by selling your existing one and buying a new one.

On a similar note where you buy a new main dwelling and later (within 18 months) sell your main dwelling (therefore replacing your main residence) you will have paid the ADS up-front on your purchase but are entitled to claim the ADS back. If you are not replacing your main residence then you are unable to claim the tax back later.

If you sold your main residence in the last 18 months and are buying a new main residence in replacement of your main residence within that 18 months you will not be liable for ADS.

Example 3

Where a company is purchasing its first dwelling it will always be liable for the ADS. It is unsurprising that the Scottish Government has blocked such an obvious way of avoiding/mitigating the additional dwelling supplement tax.


Example 4

Where you own a house which is your main residence and you buy a piece of land then if that land has planning permission for a residential dwelling but no building work has commenced nor does it have any existing structures on it then you will not be liable to pay ADS on this purchase as the land you are buying will not be considered as a dwelling.  Although you intend to build a dwelling on it, the use of the property at the effective date of the transaction overrides any past or intended future uses.

However the land may be considered as a dwelling if at the effective date there exists a structure or building already on it (even if you intend to substantially refurbish or demolish it), a dwelling is currently being built on it, or if a contract exists for a builder to construct a dwelling on it i.e. an off-plan property.

Example 5

Where you are selling your own main residence and replacing this with a new main residence, and for the purposes of this example, let us assume that you are very wealthy, and in addition to the large mansion you are purchasing you are also acquiring, as part of the deal, a “gate house”. You will be liable to pay ADS on the part of the purchase price that is attributable to the “gate house” as this part is considered to be an additional dwelling.

These examples are not exhaustive and as you can see from some of the examples above, whether you are liable for ADS is very much dependent on your particular circumstances. Therefore, should you believe that you are potentially affected by the additional dwelling supplement you should take individualised legal advice and this article should not be relied upon or construed as providing legal advice.  Should you require any legal advice regarding any of the issues raised in this article, or should you wish to discuss your next purchase, please get in touch with either Mark Allan, Associate, by email at m.allan@jgcollie.co.uk or your usual contact at James & George Collie.

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