Lauren Hazlie: Extension to the Additional Dwelling Supplement Tax reclaim period

Lauren Hazlie

Lauren Hazlie, property solicitor at Jones Whyte, details the impact of the coronavirus pandemic on the housing market by discussing the extension to the Additional Dwelling Supplement Tax reclaim period.

In Scotland, Additional Dwelling Supplement (ADS) Tax must be paid by a buyer on the purchase of their second property and thereafter on the purchase of any additional property, the tax payable at the rate of 4% of the purchase price of the additional property. One exception to this tax is where you sell your existing home and buy your new home on the same day, this being known as Main Residence Relief. As long as you are simply swapping your main residence, it is irrelevant how many other properties you own, no ADS Tax will be payable.

Whilst most people will require to sell their own home before buying their new home, some people may choose to purchase their new home without having first sold their current home. A reason for doing this may be for example their new home requires renovated, and they may wish to hold back moving into their new home until the works have been carried out, hence choosing to delay the sale of their existing home. In these situations, a buyer would unfortunately require to pay the 4% ADS Tax.

Revenue Scotland (who administer the ADS Tax) do however recognise these situations, and provided a buyer sells their existing home within 18 months of buying their new home, then they can reclaim the 4% ADS Tax that they have paid.

Due to the current COVID-19 Pandemic, The Health Protection (Coronavirus) (Restrictions) (Scotland) Regulations 2020, restricted the housing market in Scotland by prohibiting house moves unless ‘reasonably necessary’. The regulations combined with the closure of the Registers of Scotland meant the housing market almost ground to a halt for some time. This clearly made it more difficult for buyers who had purchased their new home to sell their existing home within this 18-month timeframe.

In April, The Scottish Law Agents Society had called upon Revenue Scotland and the Scottish Government to extend the period which sellers have to sell their existing home after buying their new home in order to reclaim ADS Tax. They requested a six-month extension to the reclaim period, giving owners 24 months to sell. This was fully considered in the Scottish Coronavirus (No 2) (Scotland) Bill which was passed by the Scottish Parliament recently.

The Bill further considers and details how society and workplaces should operate with social distancing in place due to coronavirus. The initial Bill provided for an additional three months to the ADS reclaim period than requested by SLAS, however this was further amended during the second stage of the Bill being passed. Homeowners now have a total of 36 months in which to sell their main principal residence and reclaim the Additional Dwelling Supplement Tax paid, where the completion date of the purchase of the new home, was between 24 September 2018 and 24 March 2020. The Scottish Government also has the power under the Bill to extend the 36-month period or amend the dates of the purchases, should this be necessary due to the continuing and changing nature of the pandemic.

As we continue to progress through the pandemic and the lockdown restrictions slowly begin to ease, the easing of restrictions on house moves should follow in due course, provided of course they can be done safely and social distancing can still be maintained.

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