Land & Buildings Transaction Tax – Additional Dwelling Supplement Proposed Changes to Legislation

Land & Buildings Transaction Tax – Additional Dwelling Supplement Proposed Changes to Legislation

Following a consultation in 2023, the Scottish Government has proposed amendments to the current rules surrounding the Land & Buildings Transaction Tax Additional Dwelling Supplement (ADS). The changes are expected to take effect from 1st April 2024, subject to parliamentary approval.

What is the Additional Dwelling Supplement?

The Land & Buildings Transaction Tax Additional Dwelling Supplement is a tax levied in Scotland on the purchase of an additional residential property i.e., a buy to let property investment or a second home. The tax was introduced in 2016 and is currently levied at 6% of the whole purchase price.

(i) Timescale for replacing a main residence:
A buyer can reclaim the ADS paid at the time of purchase of a replacement main residence if they sell their former main residence within a specified period. The current timescales for the reclaim of ADS where a new main residence is acquired after selling a previous main residence is currently 18 months. This timeframe will be extended from 18 months to 36 months from the 1st April 2024. This should take into account variances in regional housing markets and unexpected personal circumstances.
(ii) Inherited property
The proposed changes aim to provide a limited relief where a second property is inherited in the period between the conclusion of the contract and the completion of the new main residence and will also clarify the point at which a share in inherited property is classed as being “owned” for the purposes of ADS.
(iii) Small shares in property
The ADS legislation will be amended to disregard a person’s ownership in a dwellinghouse if their share in the ownership of the property is worth less than £40,000.
(iv) Divorce or separation
A relief from ADS will be introduced to provide a relief for separated spouses and civil partners that must retain an interest in the former main residence when specified in a Court order or other comparable legal document.
(v) Joint buyers / economic unit
The current provisions regarding ADS in respect of an “economic unit” state that married couples, those in civil partnerships and cohabitants, along with their dependents (children under 16, including adopted children) are treated as one “economic unit” for the purposes of determining how many properties a buyer owns at the effective date of a purchase transaction.

The proposed changes aim to ensure that where a main residence is purchased jointly and one of the buyers meets the relevant conditions regarding the disposal of their former main residence then as long as no additional properties are owned both buyers will be considered as fulfilling the repayment requirements. The proposals will also ensure that the disposal of a property in which a buyer is deemed to have an interest solely by virtue of the “economic unit” provisions will be treated as a disposal by the buyer when determining any ADS liability.

The proposed changes will also offer relief to joint buyers where only one of the joint buyers owned a previous main residence and they disposed of that main residence within 36 months before the effective date of the new main residence or where only one of the joint buyers has an ownership interest in a previous main residence and this is disposed of in the subsequent 36-month period.

It is hoped that these amendments will correct a number of the current inconsistencies in the legislation.

If you have any queries on whether or not you would have any liability for ADS, or wish to discuss your residential property requirements in general, please contact our Residential team on 01463 239393 or residential@macandmac.co.uk.

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