As of 1 April 2016, the Land and Buildings Transaction Tax (Amendment) (Scotland) Act 2016 (“the Act”) introduced the Additional Dwelling Supplement (ADS) being an additional amount of Land & Buildings Transaction Tax (LBTT) payable when a residential property in excess of £40,000 is purchased in Scotland and ‘ a) at the end of the day that is the effective date of the transaction, the buyer owns more than one dwelling in Scotland or elsewhere and b) the buyer is not replacing their only or main residence’.
This means that if an individual already owns a main residence and then purchases a further property eg a second home or an investment property, ADS will be payable on the transaction.
The tax is charged at 3% of the chargeable consideration. For all that this is a Scottish Tax, any property owned throughout the world is taken into account.
The definition of ‘individual’ extends beyond the normal definition. For a married couple, civil partners, cohabitants and their dependent children (under 16 years of age), they may only own one main residence between them at any time without ADS applying.
If a Company is the purchaser, the transaction will automatically attract ADS.
Depending on the nature of a Trust, a beneficiary’s interest may be treated as ownership. Certain purchases by Trustees on behalf of Trusts are always subject to ADS.
Any entitlement to ownership without taking title is deemed ownership ie the party is treated as the owner.
The Act specifies a two stage test in determining when the purchase of a dwelling is a replacement of a main residence or not. If a property is bought as a main residence to replace an existing main residence which has not been sold, the ADS can be reclaimed if the original property is sold within 18 months of the purchase of its replacement. ADS will be payable if a sale due to complete simultaneously with a purchase is delayed.
The Act has introduced one new relief namely that the purchase of 6 or more dwellings in one single transaction will not be subject to ADS (if Multiple Dwellings Relief is claimed).
It is too early to assess the impact of ADS on the property market. The intention behind the surcharge may have been to cool the property market for investor purchases and to give first time buyers greater opportunity. With the low interest rates, investing in residential property may still be a favourable option for investors.