The perils of the Additional Dwellings Supplement

Ross Mackay on the effects of the levy

There are many acronyms in the modern conveyancing world, but one causing a huge concern to solicitors and their clients is ADS – or Additional Dwelling Supplement.

Despite the fact it was introduced by the Scottish Government in April 2016, ADS is something which many buyers are still confused by and brings with it a host of pitfalls affecting people across Scotland.

The 3 per cent levy affects second homes. However, there are number of additional ways buyers can be caught up in having to pay this tax.

The uncertainty this brings can have a negative impact on the buying market, which is why it needs to change.

When it was introduced, the government declared that the purpose of ADS was to benefit potential first-time buyers by charging additional tax on professional landlords, 3 per cent of the purchase price, should they be acquiring a further property to add to their portfolio.

The intent was to deter such transactions and thereby release more properties into the market for first-time buyers.

While such an initiative clearly accords with stated public policy, the wide-ranging nature of the legislation has resulted in an unprecedented windfall for government finances.

Any purchaser is liable for the tax, where the purchaser has any share, in any form, in any residential building anywhere in the world.

The only waiver is buying and selling one’s principal home on the same day.

Herein lies the myriad of ways people can fall foul of ADS.

Examples highlighting how this unfair, broadbrush approach taken by the government has resulted in parties suffering a taxation penalty, which has nothing whatsoever to do with landlords or firsttime buyers.

For example, if a married couple has separated and one of the spouses wishes to move out of the matrimonial home and acquire a new property, with the other spouse remaining in residence for the benefit of the children, the purchase by the outgoing spouse will be liable for ADS.

An ex-pat Scot returning to set up home in Scotland is caught for ADS due to having a share in a title to a flat at his main business space in the Middle East.

A purchasing client would be caught out for ADS because they own a quarter share in a family holiday home in the Highlands – a share which they had merely inherited from a relative.

A young first-time buyer currently in a co-habitation relationship with a partner who owns his (or her) own home could become liable for ADS, even though he owns no other property under his own name and is a “classic” first-time buyer.

There is a wealth of similar examples and the result is that ordinary clients who are in no way classed as professional or commercial landlords are being caught out by this new tax, through no fault of their own.

At the same time there seems to be no indication that the tax is causing any substantial change in the practice of landlords in adding to their portfolios.

Therefore, is the ADS really achieving the results the Scottish government lauded?

The tax has to be refined and re-engineered so that it properly meets its policy targets without causing penalty to what may otherwise be an “ordinary” home buyer.