What taxes do I have to pay when buying a property in Scotland?

Buying a property can be an exciting time, but it does come with a significant legal process, so there is a lot to take into account when you are planning a purchase, not least of all the taxes you will need to pay.

When buying a property in Scotland there are two taxes to consider, depending on your circumstances. These are the Land and Buildings Transaction Tax (LBTT) and the Additional Dwelling Supplement (ADS), which is applicable if you are acquiring additional residential properties.

Land and Buildings Transaction Tax (LBTT)

LBTT is a tax imposed by the Scottish Government on the purchase of property or land above a specific value. Unlike Stamp Duty Land Tax (SDLT) in the rest of the UK, LBTT is fully devolved, and decisions about rates and bands are made independently by the Scottish Government. It’s important to remember that announcements made by the UK Government regarding stamp duty do not apply in Scotland.

The rates and bands for LBTT depend on the type and value of the property you are buying and whether it’s a residential property, non-residential purchase, or a lease. Buyers can use the LBTT calculator on Revenue Scotland’s website to estimate the tax payable based on the property’s details.

First-time buyers are eligible for first-time buyer relief, which is aimed at making homeownership more accessible. LBTT rates and bands will remain unchanged until 2026, offering taxpayers a level of certainty.

Additional Dwelling Supplement (ADS)

The ADS is an additional charge added to any LBTT payable when purchasing an additional residential property in Scotland. This includes buying rental properties, second homes, holiday homes, and properties used by family and friends, even if you aren’t going to charge rent.

When does ADS apply?

ADS is triggered when an individual purchases a residential property in Scotland while already owning one or more residential properties globally. This includes scenarios where two or more buyers are involved, and at least one buyer owns one or more residential properties worldwide. The ADS is applicable unless the property being acquired is replacing or selling the buyer’s ‘only or main’ residence.

Calculating ADS

The ADS rate is currently set at 6% of the total purchase price of the additional residential property. This is in addition to the standard LBTT rates, making it essential for buyers to factor in this extra cost when budgeting for their property purchase.

Exemptions and reliefs

While ADS is a general rule, there are exemptions and reliefs available for buyers. For instance, if the additional property is replacing the buyer’s main residence, ADS may not apply. However, claiming this relief requires adherence to specific timeframes and eligibility criteria.

Additionally, ADS doesn’t apply if the property being acquired is valued at less than £40,000 or if it’s a caravan, mobile home, or houseboat.

While LBTT is a standard consideration, ADS adds an extra layer of complexity, especially if you are looking to acquire additional residential properties. By seeking professional advice as a prospective buyer, you will be able to make informed decisions, understand potential exemptions, and successfully navigate the Scottish property market.