Land and Buildings Transaction Tax (LBTT) came under the purview of the Scottish Government on 1 April 2015. In the main, the Scottish legislation was a ‘copy and paste’ job of the UK SDLT rules with little independent thought given as to how this tax should work in Scotland. In April 2016 Scotland introduced a 3% Additional Dwelling Supplement (ADS) on the purchase of residential properties over £40,000 where the buyer already owned a dwelling. From 25 January 2019 that rate increased to 4% and as of 16 December 2022 that rate has increased again to 6%.
This will no doubt be a good revenue raiser for the government and goes towards supporting their aims of increasing home ownership for Scottish citizens, but throughout its lifetime, the ADS has been fraught with complexity and has in certain circumstances seemed to be unintentionally punitive – particularly when it came to joint buyers (married or unmarried) that were considered an ‘economic unit’, and transfer of property on separation or divorce.
Thankfully, in December 2021 the Scottish Government began the process of public consultation – seeking views on specific issues that had been raised about the operation of the legislation. On 23 February 2023 the Scottish Government published its proposed amendments as follows:
- Extending the relevant timeline for ADS between purchase of new residence and sale of your old main residence from 18 months to 36 months.
- Inherited property – there is to be an amendment to the legislation to clarify when a property becomes ‘owned’ on inheritance – to prevent people being caught for ADS where missives have been signed on a property purchase and a relative subsequently dies before conclusion of the sale and leaves them property.
- Small shares – a new provision that will exempt interests in property from consideration for ADS where the value of that interest is less than £40k.
- Divorce or Separation – a provision disregarding a retained interest in a property, where the interest is required to be retained by court order or equivalent legal agreement.
- Joint Buyers and ‘Economic Units’ – provisions to provide certainty and clarity for taxpayers.
- Local Authorities – provisions to provide parity of treatment between Local Authorities and Registered Social Landlords for LBTT and ADS.
The above won’t resolve all the issues with the legislation, but it’s a very positive step and great to see the Scottish Government taking the reigns on their own Revenue levers.