What is Additional Dwelling Supplement (ADS) and am I liable to pay it?
Additional Dwelling Supplement (ADS) is a tax that is payable when you purchase a new residential property while already owning another. Your existing property does not necessarily have to be in Scotland, it can be anywhere else in the world. ADS is payable in addition to any LBTT (Land and Buildings Transaction Tax) (previously known as Stamp Duty) you are liable to pay.
How much ADS will I be required to pay?
ADS is charged at a rate of 6% (with effect from 16 December 2022) of the total purchase price. ADS tax only kicks in when you are purchasing a property for £40,000 or above.
How is ADS paid?
ADS requires to be paid by your conveyancer on your behalf when submitting the LBTT return. Such returns must be submitted to Revenue Scotland within 30 days of the date of entry of the purchase and any ADS payable must be paid at the same time as submitting the return. If you do not submit and pay your return within 30 days financial penalties and interest may apply.
ADS is not payable if you replace your main residence. For example, you own a flat in Edinburgh which you rent out, and a house in Glenrothes which you live in and which is your home or “main residence”. You sell your home in Glenrothes and buy a new home in Kirkcaldy which you plan to live in and treat as your “main residence”. Despite the fact that you technically own more than one property when you buy the new home in Kirkcaldy, the fact that you have replaced your ‘main residence’ means that you will not be liable to pay the ADS tax. However, you must occupy the new property as your home or main residence. If you have not sold your previous main residence before purchasing your new home, but sell the previous main residence within 18 months of purchasing the new home, you can apply for a refund from Revenue Scotland on any ADS tax you paid. Your solicitor can deal with this for you. If, however, you do not sell your previous main residence within 18 months you will not be eligible for a refund.
There are further guidelines in relation to the ‘main residence’ exception where you are purchasing with a partner. The main point to remember about replacing a main residence is that you and the partner must have lived in the property together as your ‘main residence’. For instance, you and your partner each own your own home and intend to buy a new home which you will live in together. One of you sells first and then moves in with parents. Then you jointly purchase the new home but the other person still owns their current property. If that property is sold 2 months later, following the purchase of the new property in your joint names, you may think that you would be able to claim a refund of the ADS. However, this would be unsuccessful. Why; because only one of you lived in the second property and was able to claim it as their ‘main residence’ .