The Scottish Government has published a response to its consultation on proposed legislative amendments to the Additional Dwelling Supplement (ADS) rules. These changes include extending 18-month deadlines to 36 months and providing relief from ADS on divorce or separation.
In total, 52 responses to the consultation were received.
The consultation focused on draft legislation in six key areas of proposed changes to the Land and Buildings Transaction Tax (LBTT) Additional Dwelling Supplement (ADS) rules.
A majority of respondents agreed that the proposed legislative clauses in each area achieved the intended aims of the Scottish Government set out in the consultation. Several unique concerns and proposed next steps were highlighted.
ADS timelines
No further amendments will be made to the draft legislation extending the timeline for ADS from 18 to 36 months, for:
- Purchasing a new main residence after disposing of a previous main residence.
- Disposing of a previous main residence after purchasing a new main residence, and therefore claim an ADS repayment.
- Considering whether a property was a buyer’s only or main residence in the period before the purchase of a new main residence.
It is intended that this change will be enacted as drafted.
Inherited property
The consultation sought views on draft legislation relating to inherited property. This aims to disregard properties inherited post-conclusion of missives on the purchase of a new main residence for the purposes of the ADS and clarify the point of ownership of inherited property.
- Some responses argued for the introduction of a three-year grace period from ADS following an inheritance, but in its response, the Scottish Government confirmed that it does not intend to provide for this.
- In light of the responses, the Scottish Government will amend the draft legislation to include scenarios whereby property is transferred by means other than straightforward inheritance following the death of a person.
- A minor amendment will be made to further clarify the point of ownership of an inherited property for the purposes of the ADS legislation.
Small shares
Views were invited on draft legislation intended to disregard property shares from consideration for ADS purposes where the individual’s share value is less than £40,000, in the context of deemed ownership provisions.
- Most respondents did not consider that targeted anti-avoidance measures would be necessary. The Scottish Government agreed with this, concluding that the anti-avoidance rules already in existence were sufficient.
- Subject to a minor change, the draft legislation will remain as consulted on.
Divorce or separation
Respondents were invited to give their views on draft legislation to provide relief from the ADS on a purchase of a main residence where an interest in a previous main residence is required to be retained by court order or a comparable legal document.
- A number of extensions to the drafted provisions were suggested by consultees. As reflected in the views of respondents, the Scottish Government acknowledged that a range of scenarios can occur concerning the interaction of divorce or separation with the ADS.
- The Scottish Government concluded that maintaining the requirement for taxpayers to present documentary evidence of a court order or comparable legal agreement was considered to be essential for compliance purposes. In addition, extending the relief to include cohabitants would represent a significant departure from the policy aim of the legislation potentially resulting in unintended outcomes.
- The clauses will remain as initially drafted, other than a change to clarify the equal treatment of divorces and the dissolution of civil partnerships.
Joint buyers
The draft legislation consulted on proposed that:
- Where a main residence is purchased jointly and only one buyer can meet the repayment conditions, where no additional relevant properties are held, both buyers will be treated as meeting the repayment conditions.
- Disposals of a previous main residence in both the 36 months before and after the purchase of a new main residence may be considered when determining if the ADS is repayable.
- The disposal of a property in which a buyer is deemed to have an interest solely by virtue of the economic unit provisions should be treated as a disposal by the buyer when determining ADS liability
Following the responses given to the consultation, a new paragraph has been added to the draft provisions seeking to ensure that in joint purchases where two or more buyers independently have an interest in a dwelling or dwellings other than the subject matter, then all buyers must meet the conditions to qualify for a repayment.
Local authorities
The sixth area consulted on was draft legislation to provide relief for local authorities from Land and Buildings Transaction Tax (LBTT) and ADS where the purchase is funded under s.2 of the Housing (Scotland) Act 1988.
- Half of the responses called for a broader relief to be available, with several responses suggesting that the relief would be better linked to s.2 of the Housing (Scotland) Act 1987 (the 1987 act) to encourage local authorities to buy property to meet locally agreed housing needs that are not fully reflected in the Scottish Government’s funding frame.
- As a result, the Scottish Government intends to extend the scope of the proposed relief to include all purchases of land or buildings by local authorities in pursuance of powers granted under s.2 of the 1987 act.
Legislation
The Land and Buildings Transaction Tax (Miscellaneous Amendments) (Scotland) Order 2024, which makes the above changes to the Land and Buildings Transaction Tax (Scotland) Act 2013 has been received by the Scottish Parliament.
Subject to parliamentary approval, the changes above are expected to take effect from 1 April 2024.
Useful guides on this topic
LBTT: Land and Buildings Transaction Tax
What is Land and Buildings Transaction Tax (LBTT)? What are the rules?
LBTT: Additional Dwelling Supplement
What is the Additional Dwelling Supplement for the Land and Buildings Transaction Tax? When does it apply?
LBTT vs SDLT: Comparing the rates and additional dwellings charge
How does LBTT compare to SDLT? What are the key differences?
LBTT: Multiple Dwellings Relief
What is Multiple Dwellings Relief (MDR) for Land and Building Transactions Tax purposes? When does it apply and how is it claimed? What are the differences between MDR for SDLT and LBTT?
Scottish LBTT Rates
What are the Land and Buildings Transaction Tax (LBTT) rates?
External links
Revenue Scotland: Additional Dwelling Supplement - change proposals: consultation analysis and Scottish Government response
Draft legislation: The Land and Buildings Transaction Tax (Miscellaneous Amendments) (Scotland) Order 2024
