On 30th June, the Scottish Parliament passed a Statutory Instrument which amends the legislation governing Land and Buildings Transaction Tax (LBTT), the tax which replaced Stamp Duty Land Tax in Scotland in 2015. 

 

Under the LBTT rules, there is an additional charge, known as the Additional Dwellings Supplement (ADS), whereby an additional amount of LBTT is due on the purchase of additional dwellings in Scotland, such as buy‑to let properties and second homes.  The rate of the ADS charge is 3% of the second property’s value.

 

Prior to the passing of the legislation, the law treated spouses, civil partners and co‑habitants as “single economic units”, in order to protect against tax avoidance.  This had, however, the unintended consequence that ADS was charged when couples purchased a new home together in certain circumstances.

 

Prior to the amending legislation being enacted, ADS was charged in the following circumstances:-

 

  • In transactions where spouses, civil partners or co‑habitants jointly bought a dwelling, and prior to the purchase they sold a dwelling that they both lived in but was owned by only one of them, and the effective date of the new joint purchase either buyer owned or was deemed to own a further dwelling.  The ADS previously applied to the purchase because both buyers were not replacing their main residence (as the previous main residence was owned by only one of them). 

 

  • In transactions where spouses, civil partners or co‑habitants jointly bought a dwelling, and after that purchase but within eighteen months of it, they sold their previous main residence, and that previous main residence was owned by one of them only.  The ADS previously applied to the purchase because they were not both replacing their main residence.   The effect of the amending legislation now means that in this situation the ADS is still payable, but when the previous main residence is sold within 18 months of the purchase of the new one, a claim for a refund can be made by the purchasers.

 

It should be noted that for the new relief from ADS to apply, the property sold must have been the main residence of both the joint buyers and these joint buyers must be spouses, civil partners or co‑habitants.  The amending legislation only applies to transactions where the contract is entered into on or after 20th May 2017 and where the transaction completes on or after 30th June 2017. 

 

The legislation can be found here: http://www.legislation.gov.uk/ssi/2017/233/contents/made