Author's note: The ADS rate has seen increases since this article was originally published. 

For transactions on or after 16 December 2022 the ADS is 6% of the purchase price.

For transactions on or after 25 January 2019 the ADS was 4% of the purchase price.

For transaction prior to 25 January 2019 the ADS was 3% of the purchase price.

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It’s only a year ago that the property tax system in Scotland changed, with Stamp Duty being dropped in favour of LBTT – the Land and Buildings Transaction Tax.

Now, we’re set for another change to the tax system, with the announcement of a surcharge on the purchase of additional dwellings in Scotland, for example, buy to let and second homes. The extra LBTT will be known as the “Additional Dwelling Supplement” (ADS).

In most cases, ADS will be a 3% surcharge in addition to any LBTT payable in any transaction where the price exceeds £40,000 – meaning the supplement will be applied even on homes which would not normally pay LBTT as they fall below the £145,000 level.

ADS will apply to most purchases of additional dwellings by individuals in Scotland where, at the end of the day in which they concluded the transaction, a buyer owns two or more dwellings and is not replacing their main residence.

Some of you may think that this does not apply to you, as you will only ever own one home. However, it is worth noting that if you buy a new property, but for any reason have not managed to complete the sale of your current home (for example, a buyer pulling out or a delay) then you may be liable for this charge. (There will, in most cases, be the ability to reclaim any ADS paid, but the charge is imposed immediately.)

Let’s take a look at an example.

Mr and Mrs Brown are moving because Mr Brown has a new job in a different town. They buy a new house with a date of entry of 1st May 2016 at a price of £250,000. Their own house in Aberdeen is slow to sell but they have managed to organise things so that they can pay for their new house on 1st May. On that date however, they still have their existing dwelling and therefore, as of the close of 1st May they own two houses. Mr Brown expects to have to pay LBTT on the acquisition of the second house and the calculation of LBTT means that an amount of £2,100 is payable. In addition however, they will have to pay ADS at 3% of £250,000, an additional £7,500.

You can see more examples of how ADS will be applied, for example in the case of a second home, in my blog here.

The ADS charge is set to come in at the start of April – if you are in the process of buying a new property please talk to your solicitor to find if and how the change will affect you.