What is the second home tax in Scotland – Additional Dwelling Supplement (ADS)

When purchasing a residential property in Scotland, find out if you must pay the Additional Dwelling Supplement (ADS).

What exactly is an Additional Dwelling Supplement or ADS?

Any Land and Buildings Transaction Tax (LBTT) that may be owed is increased by the ADS fee. In Scotland, you must pay it if you purchase a second residential property.

Several instances of additional residential properties:

  • A second house
  • A house for rent
  • A holiday home
  • A house used by family and friends even though you don’t charge them rent

When is the ADS applicable?

Typically, you’ll pay ADS when:

you purchase a property in Scotland while also owning one or more residences elsewhere

when there are two or more buyers and If a potential buyer already owns a home anywhere in the world

You are not switching out or leaving your only or main residence.

Only residential properties valued at £40,000 or more are included in the calculation.

The ADS is applicable to the majority of non-natural persons, often known as non-individuals, such as corporate entities, businesses, and some trusts, that purchase residential real estate in Scotland.

When doesn’t the ADS apply?

The ADS won’t be applied if:

  • if you only have one home at the end of the effective date
  • The house is worth less than £40,000.
  • before purchasing your new primary house, you replaced your sole or primary residence within the previous 18 months.

Can I request an ADS reimbursement?

You may be eligible for reimbursement if:

  1. You list your old home for sale within 18 months of purchasing your new one;
  2. During the 18 months prior to purchasing the property for which you made the ADS payment, the property you sold served as your sole or primary residence;
  3. You have resided as your sole or primary residence in the property for which you paid the ADS.

If all of the buyers do all of these things, a claim for reimbursement can be made.

There are special rules for spouses, civil partners, and people who live together. Only one of them needs to meet point 1, but both must meet points 2 and 3.

Getting a reimbursement on an ADS during the COVID-19 time

The previous main home sale window of 18 months has been extended to 36 months for purchases made between September 24, 2018, and March 24, 2020.

How to pay an ADS refund or get one

Along with your Land and Buildings Transaction Tax (LBTT), the ADS is calculated. You pay it along with your LBTT and include it on your LBTT return.

Depending on whether you are claiming an ADS reimbursement as a taxpayer or via an agency to do so on your behalf, there are various choices available.

ADS interest and rate

The ADS is 6% of the purchase price for transactions that take place on or after 16 December 2022.

The ADS is 4% of the purchase price for deals made on or after January 25, 2019.

The ADS was 3% of the purchase price on transactions completed before January 25, 2019.

LBTT Tax Returns

If you started a new tax return before December 16, 2022 for:

  • The draft can be presented for a tax return with an effective date of 15 December 2022 or earlier because the ADS will have been calculated at 4%.
  • A tax return with an effective date of 16 December 2022 or later will need to be recalculated in order for the system to renew the ADS to compute at 6%.
  • A tax return with an effective date of 16 December 2022 or later if the contract was signed before to 15 December 2022. Please double-check the calculation, and if necessary, make a manual modification to the SETS calculation by clicking ‘Edit transaction information’ in the return’s ‘About the transaction’ section.

Note: Please double-check the expected ADS result before submitting.

Amounts reimbursed with interest

The current rate is the higher of the Bank of England base rate or 0.5% annually.

The LBTT calculator can be used to determine your tax liability.

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