Additional Dwelling Supplement Increases to 8% in Scotland
The Scottish Government announced their Budget for 2025 on Wednesday, landing a devastating blow to landlords and potential second-homeowners with news of yet another increase in the Additional Dwelling Supplement. It’s thought that this increase, from 6% to 8%, will make Scotland the most expensive part of the United Kingdom to be a landlord or own a holiday home.
Our Conveyancing team is here to set the record straight about what this tax is, who has to pay it, and what the 2% increase could mean for you.
What is the Additional Dwelling Supplement?
The Additional Dwelling Supplement (ADS) is a Scottish tax payable on the purchase of additional properties. It is not payable on your main place of residence if you are a first-time buyer or are replacing your current main residence. You would be liable for this tax if you were to buy a second home, a buy-to-let property or an investment project.
It’s important to note that ADS is not the same as the Land and Buildings Transaction Tax (LBTT).
- LBTT, also known as Stamp Duty, is paid by everyone, including first-time buyers, on properties over a certain value
- If you are a first-time buyer or are replacing your current main residence, you will pay LBTT on this. You will not pay ADS
- If you purchase any additional properties, you will pay both LBTT and ADS depending on the purchase price
- If you are purchasing a property in your Limited Company, you will pay ADS on this whether it is your first property purchase or not
How much is the Additional Dwelling Supplement in Scotland now?
The rate of ADS has increased from 6% to 8% following the Budget announcement. No change was made to the threshold, meaning the tax is payable on the total price of an additional property if it exceeds the purchase price of £40,000.
Take this example. Prior to Wednesday’s announcement, if you purchased an additional property for £150,000, the amount of ADS payable on this would have been £9,000. Now, with the change in rate to 8%, you will have to pay £12,000 of ADS to the Government (as well as LBTT!).
What does this mean for the property market?
The sudden increase in the rate of ADS will impact landlords and buy-to-let investors hugely. With demand high for rental properties across the country, this increase seems almost counter-intuitive, making it more expensive for landlords to buy property intended for renting. This could also have an adverse effect on renters, who may find themselves burdened with the cost of paying this tax through increased rents.
It wouldn’t be a surprise that the property market may wobble slightly with investors and homeowners delaying their additional purchases until they have planned for this increased charge. The increase in ADS potentially has the ability to reduce property prices, as it will be factored into decision-making by purchasers looking to spend their money wisely.
Shawn Wood, Head of Conveyancing at Watermans says
“The increase in ADS announced by the Government from 6% to 8% came into immediate effect as of Thursday 5th of December. So, if a client hadn’t yet concluded missives, and ADS is applicable, then they will unfortunately be paying it at the new rate.”
“We have a number of clients who are in the process of buying an additional property to their main residence and will have to find additional funds to complete the purchase due to this unexpected change.”