ADS - Is your property purchase eligible for tax?
Additional Dwelling Supplement: The Key Points
Additional Dwelling Supplement (‘ADS’) came into force on the 1st April 2016 by virtue of The Land and Building Transaction Tax (Amendment) (Scotland) Act 2016.
The Scottish Government introduced ADS in an effort to improve the opportunity of first time buyers to gain a foothold on the Scottish property ladder by imposing a greater tax burden on those purchasing residential property as an additional purchase, for investment or recreational purposes, compared to those seeking to purchase the property as a main residence.
ADS is 3 percent of the total purchase price of an additional residential property purchase of £40,000 or more.
Who does the ADS apply to?
For purchases by individuals, ADS applies in transactions which consist of the acquisition of ownership of an additional residential property in Scotland provided that at the effective date of transaction (this is usually the date that the transaction completes):
(a) the purchaser (or their ‘economic unit’) owns more than one property, and
(b) they are not replacing their only or main residence.
For purchases by non-natural persons such as companies, ADS will apply to every purchase of a residential property regardless of how many properties are owned at the end of the effective date.
For purchases by individuals acting as a sole trader or a partner in a partnership, ADS will apply to every purchase of a residential property made in the course of a business provided that their sole or main activity is investing or dealing in property.
What is an ‘economic unit’?
Spouses, civil partners, cohabitants and dependent children under the age of 16 are all treated as one economic unit for the purposes of determining if ADS is payable.
Therefore, any residential property which is owned by a purchaser’s spouse, civil partner, cohabitant or dependent child is treated as being owned by the purchaser themselves in assessing whether ADS is payable.
Spouses, civil partners or cohabitants who jointly buy a main residence are now considered to be replacing their main residence when an existing main residence is sold, which was owned by only one of them by virtue of The Land and Buildings Transaction Tax (Additional Amount-Second Homes Main Residence Relief) (Scotland) Order 2017.
What is a residential property?
Any property owned, not only in Scotland, but also in the rest of the UK or indeed the rest of the world that is used or is suitable for use as a single dwelling or indeed any property which is in the process of being constructed or adapted for such use. This includes properties that are inhabitable and require to be demolished. However, this does not include purchases of a plot of land only even if there is planning permission in place for the construction of residential property.
Non-residential properties may also be subject to the ADS in certain circumstances.
What is classed as an additional residential property?
A property will be viewed as an additional residential property if it is the second property that is owned and does not replace a main residence. For example, if a purchaser (or their ‘economic unit’) is purchasing an additional residential property such as a buy-to-let or a holiday home and they already own the property that they presently reside in, then ADS is payable.
How do you determine if an ‘only or main residence’ is being replaced?
In order to qualify as replacing your main residence, you must have disposed of your previous main residence and intend occupying the new property you are purchasing as your ‘only or main residence’.
For the purposes of ADS, your ‘only or main residence’ is usually where you live and spend most of your time regardless if you own or rent your main residence, or if you live in it free of charge.
If you do not spend most of your time at your main residence due to work commitments, then consideration will be given to where most of your possessions are, where your spouse, civil partner or children live, where you are registered with various organisations and where you are a member of clubs or societies.
In some cases, you may be entitled to a repayment of ADS that you have paid, subject to an application for a refund within a specified time limit.
If you require any advice in relation to ADS or any other conveyancing matter then please contact our experienced conveyancing teams in our Leven, Glenrothes or Kirkcaldy offices.
Cover Photo by GotCredit
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