The Additional Dwelling Supplement has increased again, making it even more important for those buying a second property to plan their costs carefully.
The ADS is a surcharge applied to the purchase of additional residential properties in Scotland, such as second homes or buy-to-let investments. It is charged in addition to the Land and Buildings Transaction Tax (LBTT), which replaced Stamp Duty in Scotland in 2015.
Introduced in 2016, the ADS was initially set at 3%. In 2020, it was raised to 4% as part of a broader tax review, and again to 6% a year later. This has also risen over the years in England but is currently lower at 5%.
The ADS is applied on top of the standard Land and Buildings Transaction Tax (LBTT), which has a progressive rate structure:
Property Price LBTT Rate
Up to £145,000 0%
£145,001 to £250,000 2%
£250,001 to £325,000 5%
£325,001 to £750,000 10%
Over £750,000 12%
For additional properties, the 8% ADS is added to the LBTT rate at each band, applying to the full purchase price.
For example:
- A Property Priced at £100,000
- 6% Rate: £6,000
- 8% Rate: £8,000
- ADS Only (no LBTT due):
- A Property Priced at £300,000
- LBTT at 5%: £4,600
- ADS at 8%: £24,000
- Total Tax: £28,600
How to Avoid ADS Tax in Scotland
- Relief Opportunities: Buyers purchasing six or more properties in one transaction may qualify for Multiple Dwellings Relief (MDR), which can reduce the ADS liability. The properties do not need to be bought from the same seller, so concluding 6 purchases in one day could be a potential loophole.
- Cheaper Properties: The ADS does not apply to properties bought for under £40k, meaning you won’t pay anything on cheaper properties.
- Refund Options: Buyers may apply for an ADS refund if they sell their main residence within 3 years of purchasing an additional property.
The increase in Scotland's ADS to 8% means savvy investors must revise their deal structures and plan for the extra costs accordingly. While this adds to the upfront cost of investing in second homes or rental properties, ensuring you do your due diligence on purchases and know the potential end value can still allow for excellent profit. To view lots that are not subject to the increased ADS, such as lots under £40k or portfolios of 6+ properties, see what’s for sale at auction here.
