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Eight Things you may not know about the Additional Dwelling Supplement (ADS)

Recently it was revealed that the Stamp Duty Land Tax surcharge – the equivalent of the Additional Dwelling Supplement in England and Wales – was due to raise £1.4 billion in 2016-17, double the amount originally forecast.

Figures for the ADS in Scotland are following a similar pattern – while the Scottish Government estimated in December 2015 that ADS would raise about £23 million, as of December 2016 the amount collected already stood at £51 million.

While many of us are aware that ADS is payable on additional property purchases worth £40,000 or more, these huge figures show this is more than just a tax for holiday homes!

Here are eight things you may not have known about ADS and when it applies.

1. Holiday homes and rental properties DO count as second homes, even if let out, and will attract ADS. Even properties situated abroad will count as second homes when purchasing additional property in Scotland.

2. Property owned jointly is considered a second home, as is any property owned by your spouse, civil partner, cohabitee or and children under 16. The 3% tax is based on the full value of the property, not just your share.

3. ADS is NOT payable if you own more than one property and are replacing your main residence. However, you must purchase either at the same time or before selling your main residence. If you are buying a new 'main residence' but have not yet sold your previous home, you will have to pay the ADS at the time of your purchase. However, if you sell your old home within 18 months of your purchase, you can reclaim the ADS you paid at the time.

4. ADS is not payable when purchasing derelict land that you intend to build a house on.

5. When transferring a property into joint names, any outstanding mortgage transferred will be taxed at 3% if the amount of debt transferred is over £40k.

6. Companies purchasing residential property will pay ADS regardless of whether they own another property or not. If purchasing six or more properties in one transaction, no ADS is payable.

7. If you have property held in Trust, a purchase of a second residential property by the Trust could result in ADS being payable. Beneficiaries of a Trust who have the right to occupy a property, receive income from it, or have the right to proceeds from its sale through the Trust, are treated as owners of that property with respect to ADS. 

8. If you inherit property, you do not pay LBTT or ADS. However, it will be taken into account if you then purchase an additional residential property.

Katherine McGill is a partner at Pagan Osborne and specialises in residential and commercial conveyancing. In her spare time she volunteers on the board of Housing Option Scotland, a charity dedicated to helping disabled people find a home.

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