What do the changes to property tax announced in the Scottish budget mean?

19 December 2022

The Additional Dwelling Supplement (ADS) charge, paid in addition to Land and Buildings Transaction Tax (LBTT) has risen from 4% to 6%, the Scottish Government has announced. 

LBTT is Scotland’s version of stamp duty. This property tax is applied to residential and commercial property purchases in Scotland. 

The ADS is an additional surcharge that applies to most second home purchases in addition to the LBTT payment.   

This means if you are buying a residential property and you already own a home, you will need to pay the 6% ADS charge.   

If you are planning to sell your original property, you can claim the ADS amount back provided you sell within 18 months. 

The decision was revealed as part of the Scottish Budget, with the ADS increase taking effect from 16 December 2022. 

Deputy First Minister John Swinney said: “These tax decisions seek to strike a balance between ensuring there is enough money for public spending and acknowledging the challenging economic conditions facing households and businesses. 

“On Land and Buildings Transaction Tax, there'll be no changes to the main residential and non-residential rates and bands. 

“Legislation will be introduced today to increase the rate of the Additional Dwelling Supplement from 4% to 6%, raising much needed extra revenue.” 

The Scottish Government say this ADS increase will create £34 million which will go to the NHS and other public services. 

What will the impact be on property tax payments in Scotland? 

John Swinney said the rise in ADS has been introduced to help provide less barriers for first-time buyers to get on the property ladder, adding: “Increasing the tax due on the purchase of additional dwellings such as second homes maintains our commitment to protect housing opportunities for first-time buyers in Scotland, while also raising vital extra revenue.” 

It’s important that landlords are aware of the taxes you are required to pay when you purchase a buy-to-let, when you rent the property out and when you then sell it so you can budget accordingly. 

The amount of LBTT paid on a residential property transaction depends on the property purchase price. There are various LBTT bands, with a different percentage of tax applied to each band.  

The current rates and bands are set out in the table below:

What does the new ADS rate mean in practice? As an example, for a property purchased at £250,000, you would be liable to pay £2,100 in LBTT, along with £15,000 in ADS, making it £17,100 in total. 

Wide gap between England and Northern Ireland property tax and Scottish LBTT  

In the mini-Budget on 23 September, former Chancellor Kwasi Kwarteng didn’t lower stamp duty rates but the thresholds where stamp duty kicks in were changed to start at transactions of £250,000 (double the previous limit of £125,000) and the exemption for first-time buyers rose from £300,000 to £425,000.  

In the Autumn Budget Statement on 17 November 2022, Chancellor Jeremy Hunt announced that the stamp duty thresholds would reduce to previous limits from 31 March 2025. 

This means there is now a large disparity between first-time buyers in England and Ireland and those in Scotland.