In its most recent finance budget, the Scottish Government increased the Additional Dwelling Supplement by 33% from 3% to 4% with effect 25th January 2019.
The Additional Dwelling Supplement is a tax on the purchase of a second or subsequent residential property, such as a holiday home or buy to let where the value of that property is more than £40,000. It is paid in addition to the Land and Buildings Transaction tax, even where nothing is due for this tax. The increase means the the Additional Dwelling Supplement on a second property purchase of £100,000, will increase from £3000 to £4000.
The tax was originally brought in to mirror similar legislation in England and Wales and the idea behind it was to help first time buyers who were being priced out of the market by professional landlords. It has however become an easy tax for governments to manipulate and raise additional revenue. There are arguments that the lack of affordable rental property across Scotland, especially in big cities is as a result of the tax. A number of surveys have shown that landlords are exiting the market or not adding to their existing portfolios. This has resulted in an increase in rents.
There are also other potential consequences of the tax. If an individual, either on their own or as part of a couple, already owns a residential property as their main principal residence and if they then buy another property as their main principal residence, then if the existing property owned is valued at more than £40,000, they will pay a 4% Additional Dwelling Supplement on the whole purchase price if their former property hasn't been sold. For example, if the sale of their main residence falls through but they continue with the new purchase, they will be due to pay the tax. The Additional Property Supplement can be reclaimed if they subsequently sell the original property within an 18 month period. The tax would also be payable if a couple separate and the person moving out buys another property, whilst still having a financial interest in the former matrimonial home.
