ADS changes in the new tax year

14 May 2024 Property & Estate Agency Sharon Connolly

As the new tax year unfolds, property investors and buyers in Scotland find themselves contending with revised regulations surrounding Additional Dwelling Supplement (ADS).

ADS is a tax payable on purchases of additional residential properties in Scotland, including buy-to-let properties and second homes, and is currently a 6% charge. It's an additional levy on top of the Land and Buildings Transaction Tax (LBTT) and can significantly impact the overall cost of property transactions.

From 1 April 2024, a new LBTT relief for local authority purchases was introduced. Changes were also made to the way in which the Additional Dwelling Supplement (ADS) is applied. One of these key changes to ADS is regarding the timeframe for replacing a main residence. When moving between properties, a buyer has to sell their former home within a specified period in order to reclaim ADS. This period has been extended from 18 months to 3 years, giving you more time to sell a property.

Another amendment is regarding small shares in a property. In the past, if the total value of a property was £40,000 or more, this would be counted as ownership of a dwelling for the purposes of the ADS, regardless of your share value. This has now changed to look at your share of the ownership and if this is less than £40,000, ownership of the dwelling will not be considered for the purposes of the ADS.

If the buyer inherits a dwelling, between concluding missives and the completion date for the purchase of a new main residence, the inherited dwelling may not (depending on individual circumstances) count towards the number of dwellings owned for the purposes of the ADS. There are also exceptions for divorce and separation, depending on various conditions, and provisions for joint buyers.

ADS in Scotland has increased significantly over the years, often deterring property investors from purchasing additional residential properties, thereby freeing up housing stock for first-time buyers and those in need of primary residences. For property investors and buyers however, these new changes necessitate careful consideration and strategic planning. Understanding the implications of ADS rates and where they are applicable is essential for budgeting purposes and assessing the financial viability of property investments.

Our experienced conveyancing team at Macnabs is well-versed in the intricacies of ADS and can provide tailored advice to ensure clients make informed decisions when entering into property transactions. Whether you're a seasoned investor or a first-time buyer, we're here to streamline the process and safeguard your interests every step of the way.

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