In April 2016 the Additional Dwelling Supplement was introduced in Scotland. This means that buyers who already own another property have to pay additional tax of 3% on the purchase of the new property unless they are replacing their main residence.
The principle is simple – the Government wants those buying properties for investment purposes to pay a higher rate of tax than those who are buying a property to live in themselves. The theory is that this is of particular benefit to first-time buyers as they will have to foot a lower tax bill than investors who may be competing with them for the same property.
In practice however, the rules are anything but simple and depending on your circumstances, you might find yourself facing an unexpectedly large bill.
Here’s a look at some of the most common scenarios to help you see whether you are likely to be affected.
1. I will be buying my new home before I complete the sale of my current home. Will I have to pay ADS?
Yes, as when the purchase of your new home completes, you will own two properties.
There is some good news though. As long as the sale of your existing home takes place within 18 months of your new purchase, you will be able to submit a claim for repayment of the ADS. Your solicitor will be able to help you with submitting this claim.
2. I own one property which I rent out, but it is worth less than £40,000. Will I have to pay ADS when I buy a new home?
No. Properties valued at less than £40,000 aren’t considered for the purposes of ADS. Equally, if the new home you buy costs less than £40,000 no ADS is due.
3. I am looking to buy a property in Scotland and I own another property overseas which I plan to keep and rent out. Will I have to pay ADS on the property that I buy in Scotland?
Yes. It doesn’t matter what country the other property is in, if it is worth more than £40,000 you will have to pay ADS on your new home as, when you buy it, you will own two properties.
4. I am living with relatives, but I own a flat which I am currently renting out and plan to keep. I am now looking to buy my own property to live in as my main residence, will I have to pay ADS on this?
Yes. Because you will own two properties when the purchase of your new home completes and you are not selling a main residence, you will need to pay the additional tax.
5. I own a flat that I rent out and a house that I live in as my main residence. I am now planning to sell the house and buy a new property to live in as my main residence. Will I need to pay ADS?
No. As you will be replacing your main residence in this scenario you would not be subject to the additional tax.
6. I currently own no properties and I’m now planning to buy my first home and rent it out. Do I need to pay the additional 3% tax?
It depends. If you are buying the property purely for the purpose of renting it out, you will pay ADS. If, however, you have an intention at some point in the future of living in the property as your main residence then you would not pay ADS.
7. I am buying a home that will require a lot of work done to it. I will need to spend six months renovating the new property, then I will be able to move into it and sell my existing home. Will I have to pay the ADS?
Yes. The date that matters here is the date on which the purchase completes, not the date that you move into the new home. On that date you will own two homes and will have to pay the Additional Dwelling Supplement.
As long as you sell your existing home within 18 months of buying the new property, you will be able to submit a claim for repayment of the ADS though.
8. I own a business and we are planning to purchase a property for a key member of staff to live in. It will be the only property that the business owns. Will we need to pay ADS?
Yes. All purchases of residential property by a company are subject to the ADS.
9. I am buying a property with my partner. She is the sole owner of another property which she plans to keep and use as a buy-to-let. I don’t own any properties, so will I still have to pay the ADS?
Yes. If you are buying a house jointly, each party involved in the purchase is considered as being the buyer of the property. The ‘buyer’ here is you and your partner and between you, you will own two properties on the date of purchase.
10. I own my own home and I’m gifting money to my son to help him buy his first property. Does this mean that we will have to pay the ADS?
As long as your son will be the sole owner of the new property then you will not be subject to the additional tax.
If you are buying the flat jointly with your son and your name will also be on the title deeds, then the purchase would be subject to ADS.
11. My wife is the sole owner of the property we currently live in as our main residence. I am the sole owner of another property which we currently rent out. We are planning to sell our main residence and jointly buy a new home to live in. Do we have to pay the ADS?
Not any more. As long as the contract was entered into on or after 20 May 2017 and the transaction completes after 30 June 2017, ADS is no longer applied in this scenario.
If you have a question about property tax, or any other aspect of buying or selling a home, get in touch with Warners today on 0131 667 0232 or by emailing firstname.lastname@example.org and one of our expert team will be delighted to help.