Call for views on Additional Dwelling Supplement
The Scottish Government had its own version of ‘Tax Day’ with a series of papers issued on 16 December 2021. This included a call for evidence on ‘Land and Buildings Transaction Tax Additional Dwelling Supplement’; Members are invited to send their views on Additional Dwelling Supplement (ADS) to the ICAS tax team.
Anecdotal feedback to ICAS is that more accountants are being asked to give advice on Land and Buildings Transaction Tax (LBTT) than was traditionally the case with Stamp Duty Land Tax (SDLT) – with clients wanting advice on how to minimise the costs and reduce the risk of non-compliance.
The ICAS tax team intends to respond to the call for evidence with a focus on some common issues arising with ADS that have been brought to our attention. Note, however, that the call specifically excludes consideration of the abolition of ADS or consideration of the rate (currently 4%) at which the tax is charged.
The Land and Buildings Transaction Tax (Amendment) (Scotland) Act 2016 brought in ADS as a 3% surcharge on all additional properties purchased for £40k or more with effect from 1 April 2016. ADS was legislated for in a truncated bill process in Holyrood, in response to measures being enacted in Westminster to raise a similar SDLT levy, and ADS shows the consequences of the lack of a full and proper consultation process. It may be a tax that is relatively straightforward for the majority, but there are cases where it can be complicated and may be felt to be unfair.
Revenue Scotland recently issued ‘2020-21 Annual Summary of Trends in the Devolved Taxes’, which includes statistics about ADS. In the five years since its introduction, around 510,190 residential LBTT returns were submitted, with 22% including ADS and an average of just under £6,000 ‘gross’ ADS per transaction (‘gross’ being before repayment claims are made).
Key concerns that have been raised to date are about the timelines, the application of ADS in various joint buyer scenarios, the way in which the ‘economic unit’ provisions may apply and the treatment of purchases following inheritances or after a divorce or separation.
There are differing views as to what should be an ‘economic unit’ and this can cause a sense of unfairness in some situations, usually where couples get together, or when they split up. This was partially addressed by revisions made by a statutory instrument in 2017 and the Land and Buildings Transaction Tax (Relief from Additional Amount) (Scotland) Act 2018 but arguably they do not go far enough.
The call for evidence also asks for views on whether Revenue Scotland should be given a discretionary power to disapply the ADS provisions where exceptional events or circumstances arise that are beyond taxpayers’ control and prevent them meeting the conditions for an ADS refund. This would allow a range of issues, such as unsafe cladding or the pandemic, to be accommodated without the need for constant changes to the legislation.
In all but straightforward cases, the legislative provisions can also be complicated. Whilst LBTT is charged on a particular transaction, ADS is an overlay that may be charged on the same property but on a different basis, dependent on the purchaser’s personal circumstances. The charging basis also differs - LBTT is ‘progressive’ in its charging structure, but ADS is a 4% slab tax in all cases where the transaction value is over £40,000.
In defining the tax base there have to be boundaries; those taxpayers who are close to the boundaries may test them and, if falling on the ‘wrong’ side, be dissatisfied with them. The issue with ADS is whether the boundaries are properly defined (i.e., do taxpayers agree with the charging policy) and are they clearly defined (i.e., do taxpayers understand where the boundaries are).
The call for evidence also asks if there may be particular concerns about ADS in remote and rural areas. A further consultation will take place on any proposed legislative amendments in due course.
The ICAS role is to share insights from ICAS members into the many complex issues and decisions involved in tax and regulatory system design, and to point out operational practicalities. Please let us know of your experience in advising on ADS, where the problem areas are and the extent of the problems by emailing firstname.lastname@example.org.