The Additional Dwelling Supplement (ADS) is part of the Land and Buildings Transaction Tax regime that applies to the purchase of residential property in Scotland.
Normally, the ADS is payable where an individual or individuals acquires a “second home” or an additional property (such as an investment property) in addition to their principal home. The supplement is also payable by a Limited Company or other incorporated body on the acquisition of any property (even a “first property”).
The ADS is payable on applicable transactions where the consideration paid for the property is £40,000 or more. Tax is paid at the rate of 4% on the full price of the property.
In most cases, where individuals complete the purchase of a new home, they will have completed the sale of their previous home.
Sometimes, however, there is a “gap” between the date the purchase of the new home completes, and the date when the sale of the previous home is completed. That may be a deliberate act on the part of the persons moving home but it may also be because the previous home proves difficult to sell.
Where the sale of the previous home has not completed at the date the purchase of the new home completes, then the buyer is obliged to pay ADS, at the rate of 4% on the full price paid for the new home. For example, on the purchase of a property at a price of £200,000, ADS of £8,000 is payable. That is payable in addition to any standard Land and Building Transaction Tax payable on the purchase.
The Land and Buildings Transaction Tax (Scotland) Act 2013, contained provision that allows natural persons (i.e. not companies or incorporated bodies) to reclaim the ADS element of their Land and Buildings Transaction Tax liability, in the event that the sale of their previous property completes within 18 months after the date the purchase of their new property completed.
Due to the restrictions and rules imposed under the COVID-19 regulations, this has caused some anxiety and concern to individuals who had intended reclaiming ADS on the disposal of their previous property but where they are nearing the end of the 18 month reclaim period, and the sale of their previous home has not completed.
This situation may have arisen, in many cases because of the virtual shutdown of the property market during the lockdown restrictions and the difficulty in bringing properties to the market whilst those restrictions remain in place.
The Scottish Government has therefore taken steps this week to extend the reclaim period.
It is now the case that, where the purchase of a new home completed between 24 September 2018 and 24 March 2020, a claim for repayment of any ADS paid will be accepted where the sale of a previous main residence completes within 36 months (rather than 18 months) of the date when the purchase of the new main residence completed. (provided the purchase completed within the dates above, and otherwise satisfied the relevant regulations).
The Scottish Ministers have reserved the right to amend these emergency regulations at any time. The change in the regulations has been brought in purely to prevent affected sellers being disadvantaged due to the impact of the COVID 19. restrictions. It is possible and likely that the provisions relating to reclaim will be modified again at some point in the future, after restrictions are lifted.
The Scottish Ministers do, however, also have the flexibility at any time to further amend the reclaim provisions in favour of the taxpayer, should that become appropriate or necessary.
On the question of reclaim, that will normally be done by way of amending the original return made to the Revenue online, but alternatively, an application for reclaim can be sent to the Revenue. Thorntons are happy to assist clients in making those claims.
Insight from Ken Thomson, Residential Conveyancing Partner at Thorntons. For more information contact Ken or any member of the property team on 03330 430150.