Scotland: new LBTT relief and changes to the ADS

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Following a consultation in 2023, the Scottish Government has released its consultation response on Land and Building Transaction Tax (LBTT), alongside draft legislation. LBTT is a tax on land and buildings transactions in Scotland. From 1 April 2024, a new LBTT relief for local authority purchases will be introduced.  

Changes will also be made to the way in which the Additional Dwelling Supplement (ADS) is applied. A 6% ADS is charged on buying an additional residential property (dwelling) in Scotland. 

New relief for acquisitions by local authorities 

LBTT will not apply where the buyer is a local authority and the acquisition of land is carried out under the powers conferred by s2, Housing (Scotland) Act 1987, or is funded by a grant, etc under s2, Housing (Scotland) Act 1988. 

Timeframe for replacing a main residence 

A buyer moving between properties has to sell their former home within a specified period to reclaim the ADS. ADS may also be avoided where a new main residence is acquired within a specified period after selling a previous main residence. In both cases, the specified period will be extended from 18 months to 36 months. This will bring Scotland broadly in line with time periods that apply in England, Northern Ireland and Wales for the replacement of a main residence. 

Inherited property 

A limited relief will be introduced to prevent an unexpected ADS charge arising where another property is inherited in the period between the conclusion of missives (exchange), and the purchase (completion) of a new main residence.  

It should be noted that the rules in Scotland will still differ from England, Northern Ireland and Wales, which ignore a 50% or smaller beneficial interest held in a dwelling anywhere in the world that was inherited within the last three years.

Small shares in a property 

The ADS legislation will be amended to deem that a person is not the owner of the dwelling if their share in the ownership interest is worth less than £40,000. This will bring Scotland in line with England, Northern Ireland, and Wales. 

Divorce or separation 

Scotland will align with the equivalent rules in England, Northern Ireland and Wales by introducing a relief for separated spouses and civil partners that must retain an interest in the former main residence. The relief will apply where a court order on divorce or separation stipulates that a person must retain an interest in a former main residence that remains the main residence of their former spouse or civil partner. 

Economic unit  

The ADS is unique in having an ‘economic unit’ provision. This means that married couples, those in a civil partnership and cohabitants, along with their dependants (children under 16, including adopted children), are treated as one economic unit for the purposes of determining how many properties a buyer owns at the effective date of the transaction. A new provision will ensure that the disposal of a property in which a buyer is deemed to have an interest solely by virtue of the economic unit provisions will be treated as a disposal by the buyer when determining ADS liability. 

Joint buyers 

The general premise is that the conditions must be considered for each buyer. However, relief will be extended to transactions by joint buyers:  

• where only one of the joint buyers owned a previous main residence and they disposed of that residence in the 36 months before the effective date of the transaction; or
• where only one of the joint buyers has an ownership interest in a previous main residence that is disposed of in the subsequent 36-month period. 

Note that where two or more buyers independently have an interest in a dwelling or dwellings other than the dwelling being purchased, then all buyers must meet the conditions to qualify for a repayment. 

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