ICAS responds to Additional Dwelling Supplement (ADS) consultation
Justine Riccomini discusses ICAS’ response to the Scottish Government’s Additional Dwelling Supplement consultation.
The Scottish Government issued a consultation on changes they propose to make to the Land and Building Transaction Tax – Additional Dwelling Supplement (ADS), after calls by ICAS and other representative bodies and stakeholders. These calls were in relation to inequities arising from the legislation since its introduction under Schedule 2A to the Land and Buildings Transaction Tax (Scotland) Act 2013 in 2016.
Aims of the ADS legislation
The legislation, which charges purchases of additional residential dwellings by those with an existing interest in residential property as their main dwelling to a supplementary tax, was introduced with three stated aims:
- To protect and support opportunities for first-time buyers in Scotland;
- Reinforce the progressive tax approach to LBTT in Scotland; and
- Raise vital revenues to support public services in Scotland.
However, the legislation was not without its problems and was generally regarded by those closely involved in property transactions as universally unpopular due to the perceived inequities it contained.
When ADS applies
ADS is payable at the same time as LBTT and is added on to the value of any LBTT due on the purchase of a residential property, when:
- Someone who already owns one or more residential property/ies (anywhere in the world) buys one in Scotland, or;
- If there is more than one buyer and anyone in that party owns one or more properties (anywhere in the world),
- The only or main residence of the sole purchaser/ one of the purchasers in a part is not being disposed of.
Changes to ADS over time
The first rate of ADS was 3% in line with the UK rate. This was raised to 4% by way of SSI 2018/372 in 2018, which followed a series of Scottish Statutory Instruments in 2017 (SSI 2017/233) which gave retrospective relief to joint buyers in certain circumstances, allowing for repayment claims to be effected.
Following that, after the Scottish Budget announcement on 15 December 2022, the rate was raised again to 6%, which sets it apart from the rest of the UK. This was not anticipated by stakeholders.
ICAS and other professional and representative bodies called for further amendments to the legislation in connection with inherited property, small share holdings, and joint buyers - especially in scenarios where couples were splitting up and one of the partners was moving out and purchasing another property to live in. Tied properties, purchases of mixed property (containing residential and non-residential property), and property purchases involving local authorities also provided difficulties which needed to be ironed out.
Probably the most important change which was needed was the time limit of 18 months. ADS did not apply at all where:
- an ‘only or main’ residence was replaced in the 18 months before the buyer made a new purchase, or;
- the property has a value of less than £40,000, or;
- only one dwelling was owned at the end of the effective date.
ADS could be reclaimed (subject to special rules for spouses, civil partners and co-habitants) where the purchaser:
- sold their property within 18 months of the date of buying the new one, and;
- the property which was sold was the only or main residence of the purchaser at any time in the 18 months before
- the new property which the ADS had been paid on was purchased, and;
- the property which the ADS was paid on has been used as the only or main residence of the purchaser.
When the coronavirus pandemic came along and changed the nature of the property market, these rules were amended again to extend the time limit to 36 months for purchases made between 24 September 2018 and 24 March 2020.
The consultation issued on 8 February, which closed on 5 April, concerned itself with:
- Inherited property
- Small shares
- Divorce or separation
- Joint buyers
- Local authorities
ICAS did not respond to all of the questions in the consultation as some of them were more suited to legal experts and those in the property market, but a response was provided in relation to the key tax points. Generally the proposed changes are welcomed, but in the case of mixed property purchases, tied property and departing spouses, the revisions do not go far enough.
Some further changes in terms of revised wording could also be made to aid clarity on small shareholdings, as well as that for divorcing or separating couples.
ICAS also consider that there is no need for additional anti-avoidance legislation to be introduced in this regard as what is in place already appears sufficiently effective.
ICAS await the Scottish Government’s response to the consultation submissions it has received and hopes to be involved in the formulation of guidance on the revisions in due course. We expect to participate in a series of stakeholder round table events which have been announced as part of this consultation process.
The full ICAS response to this consultation can be found here.
Let us know your views
If any ICAS member wishes to put representations forward to be raised at the round table sessions, please get in touch with Justine Riccomini.