The additional dwelling supplement ("ADS") element of land and buildings transaction tax has come under review by the Scottish Government, which is seeking evidence and views on how the tax operates.
ADS is due when buyers of a house own more than one property as a result, and is charged at 4% of the price of any property sold for £40,000 or more. It is not intended to apply where they are replacing their main residence, but the rules have created anomalies and inconsistencies as to when it is charged and when it is not (see Journal article at this link). It may also have to be paid on a main residence and recovered later.
More than one in five of the residential LBTT returns submitted to Revenue Scotland between April 2016 and March 2021 included an amount of tax related to ADS, with an average payment just under £6,000.
The Scottish Government committed to a review of ADS in the 2021-22 Programme for Government. Its published consultation seeks views on a number of key themes including:
- the length of time available to purchase a new main residence before or after the sale of a previous main residence;
- the application of ADS in certain circumstances, for example:
- two or more people buying a property together;
- transactions involving local authorities, housing co-operatives or other approaches providing housing that is intended to be affordable;
- whether there are issues in relation to ADS affecting different parts of Scotland which should be considered.
The review does not include whether or not the ADS should remain in place. The Government regards ADS as an important element of LBTT which will continue.
Questions cover the length of the 18 month period in the tests for whether a main residence is being replaced; rules that apply in relation to inherited property, joint buyers, and divorce and separation; transactions involving housing providers; and other exceptional circumstances.
Click here to access the consultation. Responses are due by 11 March 2022.