Additional Dwelling Supplement - an update
2016 saw the introduction of the Land and Buildings Transaction Tax (LBTT) Additional Dwelling Supplement or ‘ADS’ which applies an additional 3% rate of tax to residential property purchases. Which (subject to certain exceptions) result in the buyer owning more than one dwellinghouse at the end of the transaction and which is not a replacement of their only or main residence.
For the purposes of the legislation, married couples, civil partners and co-habitants living as a married couple along with their dependent children are treated as one economic unit (or ‘buyer’). Therefore even if the title to the marital home is only in the name of one spouse, if the other spouse then buys an additional property in their name that purchase will be liable to the Additional Dwelling Supplement.
If a buyer purchases a new main residence when their previous main residence has not yet been sold the buyer still requires to pay the additional 3% rate of tax on the new purchase on top of what any standard LBTT that would be due. So long as the sale of the previous main residence then completes within 18 months the Additional Dwelling Supplement paid can be reclaimed from Revenue Scotland.
This exception, however, did not apply where spouses, civil partners or co-habitants were jointly buying a home which was a replacement main residence of a property which was only owned by one of them but occupied by them both. In such scenarios ADS comprising 3% of the overall purchase price had to be paid which in certain cases resulted in a hefty additional tax being payable with couples unable to reclaim under the main residence/18month rule exception.
In 2017 an Order was passed by the Scottish Parliament to remedy this situation however this Order was not retrospective and only applied to transactions where the contract to purchase the new main residence had been entered into on or after 20 May 2017 and the effective date of the transaction was on or after 30 June 2017.
New legislation is currently with Parliament to further amend this and give retrospective effect to the 2017 Order such that it will apply to all transactions which took place since the initial LBTT ADS legislation came into force.
Once the Land and Buildings Transaction Tax (Relief from Additional Amount) (Scotland) Bill has been passed further guidance will be issued by Revenue Scotland on the procedures to be followed in order to make a reclaim of any tax which will then be due back as a result of the new legislation.
This change will be welcomed by those couples who had been ‘caught out’ by this anomaly in the legislation whose transaction took place before the 2017 Order came into effect.
The bill is due to be debated at the Scottish Parliament later this month so for now it is a case of ‘watch this space’.
Disclaimer: Please note this article is intended for guidance/information purposes only and is not to be construed as or relied upon as legal advice. For advice on specific cases please contact one of our property lawyers.