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This is a guide for clients who require an understanding of Additional Dwelling Supplement (ADS) introduced by the Scottish Government as of 1 April 2016.

Some very modern history…

The Scottish Government introduced the first purely Scottish tax in nearly 300 years in 2015. It was called Land and Buildings Transaction Tax (LBTT) and replaced the UK stamp duty.  LBTT was planned as a more progressive tax than the UK stamp duty but arguably suffered from a rather bumpy introduction. It was certainly a more progressive tax in that the cost of the duty to purchasers of properties at lower prices was reduced as against the amount they would pay under the old system. However, the intent of the new LBTT was, overall, to collect the same amount of tax as the old stamp duty; by implication the cost of the new tax for properties above approximately £350,000 was increased, and, in the case of more expensive properties over £500,000, very sharply increased.

Outside of “hotspots” in some of the bigger cities, the market for expensive properties in Scotland is not strong. The addition of an expensive new tax appeared to those operating within the property industry to materially impact upon the numbers of expensive houses being transacted. Such observers believed that the Scottish Government would accordingly find it difficult to achieve the returns from the new LBTT tax that they had anticipated.

In November 2015, the UK government introduced (for the rest of the UK, not Scotland) an additional land tax aimed at reducing the property bubble being caused in the southern part of England, especially London. That property bubble arose from the substantial increase in the purchase of “buy to let” properties and second homes, often by foreign investors who saw the London house market as a liquid alternative currency in challenging times.

This new “buy to let/second home” tax appeared to be eagerly seized upon by the Scottish Government who announced their intention to follow the example of the rest of the UK.

Is the ADS law simple?

When new laws are introduced, whether or not they are believed to be reasonable, the effectiveness of the new law is the ease with which it can be implemented and understood. On this measurement, the new additional land tax ADS does not rank highly. The initial material produced less than two weeks before the law came into effect is 64 pages in length and incorporates 76 examples. Generally speaking, if something needs 76 examples to explain its calculations, it can be assumed that there will be unintended consequences from its implementation.

How does ADS work?

As explained above, where the guidance for what should be a simple tax, extends to 64 pages with 76 examples, it is impossible to summarise the workings of ADS in a sentence or two.

The following is clear (hopefully – some nuances may have been lost in pursuit of clarity of explanation)

  • ADS only applies to residential properties
  • where ADS is payable it is charged at 3% of the whole of the purchase price or effective transfer price
  • ADS may be payable in transfers of title that take place as part of remortgage transactions
  • if a main or principal home (whether let or owned) is
    • being replaced by another main or principal home
    • for exactly the same people and
    • there is no overlap in ownership or possession between the old property in the new property.

ADS is not payable. Where this condition cannot be met, commonly where somebody is not moving out of an old property before moving into a new property, if the condition can be met within 18 months after the purchase of the new property, a claim for repayment of the ADS paid can be made.

  • If the purchase price or market value of the property, provided there are no other complexities, is under £40,000 then ADS is not payable
  • except in a very rare circumstance, if a property is being bought at £40,000 or more, not for personal occupation, then ADS is payable
  • particular problems arise in transactions where, as an example, a couple may be buying property together where one or both of them had a property interest previously. In summary the more “non-traditional” the arrangement the more likely it may fall foul of the unintended consequences of ADS.

How does ADS impose obligations on clients and solicitors?

ADS is a self-assessment tax: behind these friendly sounding words is a rather more Draconian truth. When a tax is self-assessment it means the tax collecting authority (in this case Scottish Revenue) effectively has three bites at the cherry.

Firstly, the Revenue authority does not need to spend time answering questions on whether something is satisfactory or not because it is down to the taxpayer to get it right. Secondly, the revenue authority is placing the onus entirely on the taxpayer to self-declare the tax. And thirdly the revenue authority can, after the event, investigate the circumstances in which to establish whether taxpayer has correctly self-assessed tax with civil and criminal penalties for those who do not deal with matters correctly.

In this respect, because property ownership is highly computerised, it is very easy for the revenue authority to check whether the returns are correct.

What obligations are placed on a solicitor?

We constantly emphasise to our clients the ferocious regulatory environment in which we now find ourselves. As with all matters relating to taxation and regulation it is far easier for governments of any hue to aim at the ordinary person rather than taking on vested interests or global corporations. Governing authorities at all levels (United Nations, European, UK, Scottish and professional regulators) have attacked the traditional confidential relationship between a solicitor and his or her client. Solicitors have been corralled as “an arm of the state” in dealing with regulation relating to money laundering, tax breaches and multifarious other issues.

What this means in practice is that solicitors are effectively put in the position of policing regulation which impacts upon their clients. That is a most uncomfortable position but it is important that clients are aware that in respect of ADS there are a number of overlapping obligations upon a solicitor to ensure so far as possible that all tax is paid:

  • Anti-Money Laundering: the environment that is imposed upon solicitors in terms of the 2007 Money Laundering regulations include the requirement to make a reference to the National Crime Agency where ever a solicitor believes that there has been a breach of any tax law by a client or person who is engaging with the solicitor where there is a monetary transaction. Failure by the solicitor to follow this regime involves criminal and professional sanctions
  • Registration of Documents: whenever a client is buying a property, that purchase process is useless without registering the documents at the Land Register in Edinburgh. The Scottish Government recently introduced new legislation which imposes a criminal and civil sanction upon solicitors if they submit incorrect material to the Land Register. Part of the declaration that solicitors require to make is that all LBTT has properly been accounted for and indeed Land Registers are the tax collectors for Scottish Revenue
  • Clearly explaining the position to a client: the obligations imposed by the Law Society of Scotland is to ensure that solicitors bring matters such as ADS clearly to the attention of clients. If we do not do so then we are subject to professional sanctions.

Because of this environment, where the information collection process indicates that ADS is payable there are only two options available to which allow the transaction to proceed:

  • ADS is paid and the client is absolutely free to make a claim afterwards for a rebate of the tax; or
  • the client is able to provide an opinion from a tax expert, addressed and sent directly to the solicitor, stating that in the opinion of the tax expert ADS is not payable


In summary, the responsibility of the firm of solicitors is no longer just to primarily represent their client’s interest but at the same time meet a huge and increasing burden of regulatory checks effectively payable by the end user. As solicitors we have no latitude whatsoever; the tax is payable or it is not payable. There are no grey areas.

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