Additional Dwelling Supplement: An Update

Wooden blocks spelling out LBTT from which Additional Dwelling Supplement is derived

If you buy a house that is not your main residence or if you buy a house as your main residence but cannot sell your existing main residence, an Additional Dwelling Supplement (ADS) will be charged. The ADS is charged at a rate of 6% on the price of an additional property purchased. This payment is in addition to any Land and Buildings Transaction Tax which is payable on the purchase, whether it is your main residence or not.

However, when it was first introduced the ADS had some unintended consequences. The last Scottish Budget has addressed some of the anomalies. These changes become effective from 1 April 2024.

Reclaiming Additional Dwelling Supplement when your previous main residence is sold

If you are unable to sell your main residence before buying a new main residence, you must pay ADS on the purchase price of your new main residence. If you subsequently sell your former main residence, under the current rules you have up to 18 months to reclaim ADS. This time period has now been extended from 18 months to 36 months.

Reclaiming ADS on a jointly purchased main residence where one partner already owns a property

Where you buy a property jointly with someone else as your main residence but have not yet sold a property in your sole name, ADS will apply on the joint purchase of the new property with your partner.

However, you can reclaim the Additional Dwelling Supplement you have paid when you sell the previous property that was owned in your sole name.

ADS Relief on Divorce or Separation

There may be circumstances where a couple separate or divorce and where one of the couple remains in what was the main residence but the other does not. If the individual who has moved out but their name remains on the title to the former main residence, they may be entitled to ADS relief. This would apply provided there is a court order or a separation agreement stating that the individual who has moved out must retain an interest in the former main residence. That means when the individual who has moved out buys their own new main residence, it will not be subject to Additional Dwelling Supplement. This harmonises the rules as they stand in England, Wales and Northern Ireland.

ADS and Inherited properties

ADS relief is available in a very limited set of circumstances. These circumstances are if you inherit a property after you have concluded missives for a new main residence but before the date of entry. This is an extremely tight window so you need to calculate the potential impact of the inherited property causing you to own 2 properties.

Additional Dwelling Supplement and small shares in a property

If you own a small share in a property, you will be exempt from the two-property rule. That means if your share in the ownership of the property is worth less than £40,000, you will not have to pay the ADS on another property you buy. This also brings Scotland into line with England, Wales and Northern Ireland.

Need advice about ADS?

If you need advice about the Additional Dwelling Supplement when you are buying a house, please contact us. Our solicitors have many years of experience in looking after our clients’ interests when they are buying a house. We look after our clients’ house purchase needs in Dunfermline, and Kinross, across Fife and throughout Scotland.