Buying a new home is exciting, but it can also come with costs that are easy to overlook. One of the most important to be aware of in Scotland is the Additional Dwelling Supplement, often shortened to ADS.
ADS can apply when you buy a residential property in Scotland and, at the same time, you already own another residential property. This could include a second home, a buy-to-let property, a holiday home, or even a situation where you are buying your new house before your current home has sold.
For many buyers, ADS comes as an unwelcome surprise. It can be a significant upfront cost, and although it may be possible to claim it back in some situations, it still needs to be paid at the time of purchase.
What is Additional Dwelling Supplement?
Additional Dwelling Supplement is an extra charge that can be added to Land and Buildings Transaction Tax, known as LBTT.
LBTT is the Scottish equivalent of Stamp Duty Land Tax. ADS is charged on top of any LBTT that may already be due when someone buys an additional residential property.
At the time of writing, ADS is charged at 8% of the purchase price of the property. Unlike LBTT, which is calculated in bands, ADS is usually applied to the full purchase price. This means the cost can quickly become a large amount. For example, if ADS applies to a property purchase of £250,000, the ADS alone could be £20,000.
When does ADS apply?
ADS can apply where a buyer owns, or is treated as owning, another residential property at the time they buy a new one. Common situations where ADS may apply include:
- buying a buy-to-let property
- buying a second home
- buying a holiday home
- buying a property for family members to use
- buying a new main home before your current home has sold
- owning another property elsewhere in the UK or abroad
It is important to remember that ADS is not limited to properties in Scotland. If you own another residential property anywhere in the world, this may be relevant when working out whether ADS applies.
Buying a new home before selling your old one
One of the most common situations where ADS causes concern is when someone buys their new home while their current home is still on the market.
Many people assume that because they are moving house, rather than buying a second home, ADS will not apply. However, if the old home has not been sold by the time the new purchase completes, the buyer may temporarily own two properties.
In that situation, ADS may need to be paid upfront.
This can create a major affordability issue. A buyer may have budgeted for their deposit, mortgage, legal fees, moving costs and LBTT, only to discover that they also need to find thousands of pounds in ADS before the purchase can complete.
Can ADS be claimed back?
In some cases, yes. If you are replacing your main residence and you sell your previous main home within the required timescale, you may be able to reclaim the ADS you paid.
The current rule allows a 36-month period for selling a previous main residence after buying the new one. This means that if you buy your new main home first and then sell your previous main home within that period, a repayment claim may be possible.
However, the key point is that ADS still usually needs to be paid first. The refund comes later, once the old home has been sold and the claim has been made.
This is why early advice is so important. Even where ADS is likely to be recoverable, the upfront payment can affect whether a purchase is affordable in the short term.
How ADS affects buy-to-let purchases
ADS is also an important consideration for anyone buying a buy-to-let property.
If you already own your own home and decide to purchase a rental property, ADS will usually apply. This is because the rental property is an additional dwelling.
For landlords and property investors, ADS should be factored into the overall cost of the purchase from the beginning. It can affect the deposit required, the expected return on investment, and whether the purchase remains financially viable.
Buy-to-let buyers should also remember that ADS is payable in addition to any standard LBTT due. The total tax cost can therefore be much higher than expected.
Joint buyers and ADS
ADS can also be relevant where a property is being bought jointly.
If one buyer owns another residential property, this may affect the overall position, even if the other buyer does not own any property. This can be particularly important for couples buying together, people helping family members buy property, or buyers who already have a share in another home.
The rules can be complex, so it is always worth checking the position before making an offer or committing to a purchase.
Why it is important to plan ahead
ADS is not something buyers should leave until the last minute. Before buying a property, it is sensible to consider:
- whether you already own another residential property
- whether your current home will be sold before your new purchase completes
- whether you are buying a second home, rental property or holiday home
- whether any jointly owned property could affect the position
- how much ADS may be payable
- whether a future repayment claim may be possible
Understanding this early can help avoid unexpected costs and delays later in the transaction.
Speak to d and h before you buy
Additional Dwelling Supplement can make a big difference to the cost of buying property in Scotland. For some buyers, it is a temporary cost that can later be reclaimed. For others, particularly buy-to-let buyers or those buying second homes, it may be a permanent part of the purchase cost.
Either way, it is important to know where you stand before you commit to buying.
If you are buying a property and are unsure whether ADS applies, d and h can guide you through the process and help you understand the costs involved before you move forward.