Changes to the Additional Dwelling Supplement Legislation 

From 1 April 2024, several changes to the Additional Dwelling Supplement (ADS) are taking effect.  Transactions with an effective date prior to 1 April 2024 will use the previous rules on ADS. Any transactions with an effective date on or after 1 April 2024 will fall under the new legislation. It is also important to note that the changes will not be retrospective. 

What is the Additional Dwelling Supplement?

The ADS is an additional tax paid on the purchase of a second residential property in Scotland. Purchasers of a residential property who already own residential property anywhere in the world, and are not replacing or selling their only or main residence, are to pay a tax in addition to the Land and Buildings Transaction Tax (LBTT). The ADS is payable at a rate of 6% on the purchase price of the additional property. 

Timeline changes 

Previously, a buyer would have 18 months to sell their previous main residence after purchasing their new main residence in order to reclaim the ADS they had paid. This timeline has been extended to 36 months. The period prior to a purchase where the buyer must have lived in a property at any time for it to count as their only or main residence is also extended to 36 months. In addition, buyers are now given 36 months to purchase a new main residence after disposing of a previous main residence.

Small Shares 

Where buyers have an interest in a share of a property, if the market value of their share of that property is less than £40,000, then this will not be taken into account when deciding if ADS is due. The old rules provided that if a buyer owned even a small share of a property, they were treated as owning the whole property for the purposes of determining any ADS liability. The share of the buyer’s ownership is now considered.

Inherited Property 

Buyers who have inherited a dwelling also have relief under the new legislation. It is only available where the inherited property was obtained after missives were entered into for the purchase of a new main residence, but before the completion date of the transaction.  The dwelling that has been inherited won’t be counted in the number of dwellings owned for ADS purposes. 

Single Economic Unit

The rules on the single economic unit are also changing. The previous legislation considers a buyer’s spouse, civil partner, cohabitant or any dependent children to be part of the same “economic unit” when determining how many dwellings someone owns. This remains, but the buyer can now count any disposals by other people within their single economic unit as a disposal for the purposes of determining their own ADS liability. 

Joint Buyers 

Where a main residence is purchased jointly, only one of the buyers are now required to meet the repayment conditions (a) and (b) below.  

(a) the buyer sells their previous dwelling within 36 months of the date of buying their new dwelling; and
(b) the property sold was the only or main residence of the buyer at any time in the 36 months before they bought the property that ADS was paid on.

All buyers must meet condition (c). 

(c) the newly purchased property has been lived in by the buyer as their only or main residence. 

There is an additional condition: 

(d) where there are joint buyers who both own a dwelling other than the new main residence, then all of the buyers must meet the repayment conditions. 

Divorce or Separation 

There will now also be relief for separated spouses and civil partners who retain an interest in the former family home but have no intention of living there again with the other party. The former family home must remain as the main residence of the other party to the separation at the effective date.  The parties must also have retained ownership of the property as part of a court order or formal agreement in connection with the separation. 

Local Authorities 

Local Authorities will now get full relief when a purchase is funded through powers within section 2 of the Housing (Scotland) Act 1987 or with a grant or other financial assistance under section 2 of the Housing (Scotland) Act 1988. 

Although many of the changes are only available in limited circumstances, it is hoped that the new legislation will help to strengthen the previous rules and rectify current issues in this area.