Table of Contents
- Understanding Scotland's Additional Dwelling Supplement (ADS)
- Recent ADS rate increase: Explained
- How the ADS increase affects house purchases
- The benefits of using Jones Whyte's property solicitors
- Key takeaways
- Frequently asked questions
Understanding Scotland’s Additional Dwelling Supplement (ADS)
In Scotland, the Additional Dwelling Supplement (ADS) is an 8% property tax added on top of the Land and Buildings Transaction Tax (LBTT) when buying an additional residential property (dwelling) while already owning another.
The additional property does not replace the buyers’ main residence but rather adds to their property portfolio in the form of:
- Secondary homes
- Rental properties
- Buy-to-let investments
- Holiday homes
- Properties used by family or friends rent-free
When does ADS apply?
You’ll typically need to pay ADS if:
- You buy a residential property in Scotland while already owning one or more residential properties elsewhere in the world.
- Joint buyers include someone who already owns property, or a company is involved.
- You buy additional dwelling/s without replacing your main residence.
ADS is added to the total price of an additional property if it exceeds the purchase price of £40,000. This means ADS is calculated as a percentage of the entire purchase price of the second property, not just the amount above the threshold.
Additionally, you must submit an LBTT return form within 30 days of the property transaction date, or face penalties for missing this deadline.
Note: ADS applies regardless of where your main home is located.
Here are a few scenarios:
Single buyer purchasing their first rental property
Sara already owns a home where she lives as her main residence. She wants to purchase a flat as an investment to generate rental income. On the effective date of the transaction, Sara will own two dwellings (her home and the new flat). Because she hasn’t sold her main residence, the 8% ADS applies.
A company purchasing its first dwelling
XYZ Ltd currently operates from leased office space and doesn’t own any residential property. The company decides to purchase a buy-to-let property as an investment for £65,000.
ADS still applies because XYZ Ltd is purchasing the property as a standalone company, and the value of the dwelling exceeds £40,000, even though XYZ Ltd doesn’t own existing premises/properties.
Jointly owned property with a company
AB Ventures wants to purchase a dwelling with Carl. Neither AB Ventures nor Carl owns any property in Scotland. However, both buyers are liable for ADS (assuming the property costs more than £40,000) because when a company is involved in a jointly purchased dwelling, ADS automatically applies to the entire transaction.
ADS exemptions
- You only own one dwelling at the effective date
- The second property purchased costs less than £40,000
- You own an additional property, but its value is less than £40,000
- You have disposed of your “only” or “main” residence within 36 months before you purchase a new main residence. Meaning you do not own a property for three years prior to buying another one (you rent a property in the interim).
- Non-residential property transactions (involving six or more residential properties)
Can you claim the paid ADS back?
The paid ADS can be claimed back only if:
- The buyer sells their previous main residence within the stipulated timeframe (36 months).
- The sold property was the buyer’s “only” or “main” residence at any time during the 36 months prior to purchasing the new dwelling.
- The buyer lived in the property they paid ADS on as their “only” or “main” residence.
Recent ADS Rate Increase: Explained
In Scotland, the 2025/2026 ADS rate stands at 8% of the purchase price for any additional residential property. The Scottish Government states that the price hike aims to address the housing demand by freeing up the property market for first-time buyers and funding affordable housing projects.
For context, Revenue Scotland first introduced the ADS tax in 2016, with the rate increasing several times in recent years.
Effective Date | ADS Rate |
1 April 2016 | 3% |
25th January 2019 | 4% |
16 December 2022 | 6% |
5 December 2024 | 8% |
For example, buying a second property for £199,000 on or after 5 December 2024 would now cost £15,920 in ADS at the new 8% rate, up from £11,940 the day before.
Yet, before the rate hike, the Scottish Government announced legislation changes that came into effect from April 2024.
Key legislative changes from 1 April 2024
Here are the major ADS rule changes introduced in April 2024:
- Timeframe: The period to replace your main residence and reclaim ADS increased from 18 months to 36 months (three years), both before and after the purchase. This adjustment brings Scotland in line with the rest of the UK. However, the 18-month timeframe still applies to purchase transactions made before 1 April 2024.
- Small share dwellings: ADS is no longer charged if your share in jointly owned property is worth less than £40,000, whereas previously ADS applied to the total price of the property regardless of your share value.
- Inherited property: ADS generally doesn’t apply if a buyer inherits a dwelling between entering into a purchase contract of a new main residence and the completion date of that purchase.
- Joint buyers: If multiple buyers purchased property, they can get an ADS refund even if only one of them acquired (owned) and disposed (sold) their previous main residence.
- Divorce/separation: In some instances, buyers can avoid ADS when retaining an interest in a former main residence due to a court order (such as divorce or separation from a spouse or civil partner).
How the ADS Increase Affects House Purchases
A 2% increase might not sound like much, but when that translates to an additional £3,980 on a £199,000 property purchase, it represents a significant financial burden for buyers that could affect investment decisions and market dynamics.
Here’s a breakdown:
Cost breakdown
Property price: £199,000 (the current average property price in Scotland)
- Before 5 Dec. 2024 (6% ADS) = £11,940 [199,000 x 0.06]
- After 5 Dec. 2024 (8% ADS) = £15,920 [199,000 x 0.08]
- LBTT = £1,080
- Total property taxes = £17,000
This represents an increase of £3,980 in ADS alone, excluding the standard Land and Buildings Transaction Tax (LBTT), which also applies. The typical LBTT rate for this property price bracket is around £1,080, making the total property tax approximately £17,000 after the increase.
Note: Transactions with missives concluded before 5 December 2024 use the 6% rate; otherwise, the 8% rate applies.
Who is most affected?
- Landlords: Higher purchase prices may deter new landlords from entering the property market due to higher acquisition costs. Furthermore, renters may encounter higher rentals as landlords may pass on these additional fees to tenants.
- Second homes and buy-to-let properties: Buyers who already own a residential property (in Scotland, or elsewhere in the world) and purchase another will pay ADS on the full property price of the additional dwelling if it exceeds £40,000.
- Inherited properties: Inherited dwellings are generally exempt from ADS at the time of inheritance, but they count as owned properties for future purchases if the share value is £40,000 or more (from 1 April 2024).
- Companies and trusts: ADS automatically applies to companies, partnerships and trusts buying residential properties if the purchase price exceeds £40,000. It applies regardless of whether the company/trust already owns a property or not.
- Sellers: While not directly paying ADS themselves, sellers might see lower offers from buyers as buyers might factor in ADS costs to compensate.
The Benefits of Using Jones Whyte’s Property Law Solicitors
Partnering with Jones Whyte offers numerous advantages, including:
- Expertise: Our property law department brings decades of combined experience in Scottish property law.
- Reputation: Our 4.8/5 Trustpilot rating reflects our commitment to excellence in legal services across Scotland.
- Peace of mind: Property transactions involving ADS can be stressful. Our clear communication, responsiveness and efficient handling of your case means you can relax knowing that every detail is expertly managed.
Key Takeaways
- Scotland’s Additional Dwelling Supplement (ADS) is an 8% property tax added on top of the Land and Buildings Transaction Tax (LBTT) when buying an additional residential property (dwelling) while already owning another.
- ADS applies to additional residential properties where the property value exceeds £40,000, such as second homes, holiday homes, buy-to-let investments, etc.
- ADS generally doesn’t apply to buy-to-let investors, whereby property transactions involve six or more residential properties.
- As of 1 April 2024, the period to replace your main residence and reclaim ADS has been adjusted from 18 months to 36 months.
- Don’t let property tax deter you from your investment plans. Contact Jones Whyte today for professional advice.
Jones Whyte Is Here To Help
Whether you’re a first-time investor or are simply purchasing a holiday home, Jones Whyte is here to guide you through the process. Reach out to our team to discuss your needs today.
Please note: This article is for general information purposes only and does not constitute legal advice. It should not be relied upon as a substitute for professional legal advice tailored to your specific circumstances. If you need advice on a legal matter, get in touch with our team.
