The ADS considers the effective date to be the day the liability to LBTT arises. Generally, this is the date of settlement, or the date of completion, for standard residential property transactions. This will usually be the date the purchase price is paid in exchange for the seller delivering the keys and disposition.
Circumstances where the effective date of a land transaction is not the date that the land transaction is completed include when the effective date is the date of substantial performance of a contract without completion or the date of substantial performance of a contract requiring conveyance to a third party.
To consider whether the ADS applies we must consider how many properties are ‘owned’. The deemed ownership provisions at Part 6 of Schedule 2A apply the following rules:
An ‘owner’ includes:
- someone who has completed title as proprietor either individually or jointly by registration in the Land Register or Register of Sasines
- someone who has not completed title but who is entitled or has right, either individually or jointly, to be the owner
a beneficiary under a bare trust or a beneficiary under a settlement in which they hold a relevant interest in a dwelling that forms part of the trust property.
Note: A relevant interest means they are entitled to occupy the dwelling for life or they are entitled to income (net or gross) in respect of the dwelling
- a tenant under a continuing long residential lease of a dwelling for a term of more than 20 years
- a liferenter holding a liferent over a dwelling under a proper liferent agreement
For dwellings situated outside Scotland, a person owns the dwelling if they would be treated as the owner of the dwelling were it in Scotland.
Under Scots law, a buyer does not own a property until their title is registered in the Land Register of Scotland. However, the buyer in a land transaction is treated as the owner at the end of the day that is the effective date of the transaction for the purposes of LBTT and the ADS.
Where two or more persons are jointly entitled to ownership of a dwelling, each of the persons is to be treated as the owner.
The economic unit provisions at Paragraph 6 apply to spouses, civil partners, cohabitants and children. This means that in determining how many properties are owned, any properties owned by the buyer’s spouse or civil partner, cohabitant or a person under 16 who is a child of the buyer, their spouse or civil partner or their cohabitant is to be treated as being owned by the buyer. These rules do not apply if the parties have separated and no longer live together and they do not intend to live together again. A person is the buyer’s cohabitant if the two of them live together as though married to one another.
Three separate elements must be taken into account when assessing whether a dwelling should be counted when determining what counts as a dwelling owned by a buyer for the purposes of the LBTT(S)A 2013.
1. The definition of a dwelling
A building or part of a building counts as a dwelling if:
- it is used or is suitable for use as a single dwelling or
- it is in the process of construction or adaption for such use
Such a definition of ‘dwelling’ will cover the standard purchase of a house or flat in Scotland.
Considered to be a dwelling
- where a large house has been split into three separate flats this will be defined as three dwellings
- land enjoyed as part of a dwelling, such as a garden or grounds, will be taken as part of the dwelling
- a dwelling on a site to be refurbished or demolished would count as a dwelling
- holiday homes and lets, including those which cannot be used all year round, are considered as dwellings
Not considered to be a dwelling
- a cleared site with no buildings would not count as a dwelling even if it had planning permission for the construction of residential property
- caravans, mobile homes or houseboats will not normally be considered as dwellings unless they become sufficiently fixed to the land that they become part of the land. In such cases, these may be a dwelling if they meet the normal definition
2. Where is the dwelling?
Dwellings in Scotland are counted towards the numbers of dwellings owned. Dwellings owned elsewhere in the UK or the rest of the world are also counted.
3. What is the value of the dwelling?
Only dwellings with a market value of £40,000 or more are considered.
The market value applies to each dwelling the buyer owns. This must be a reasonable estimate of the value on the effective date of the transaction. If the dwelling is not being sold, evidence must be available to support any estimate.
Market value must include any interest or right in relation to the ownership of the dwelling, this includes enforcement rights of title conditions or servitude rights of access. There must not be any artificial separation.
There may be cases where a person may not own the dwelling outright but will have a form of ownership interest such as a tenant under a lease of a dwelling for a term of more than 20 years. The relevant figure here is the value of the ownership interest. The value of the dwelling itself is not used when working out the market value.
Where a person:
- is the beneficiary under a bare trust or a settlement under the terms of which the beneficiary has a relevant interest in any dwelling that is or forms part of the trust property
- is a life-renter, holding a life-rent over a dwelling under a proper life-rent
It is the value of the actual dwelling that is relevant in establishing the market value, not the value of the ownership interest. In these circumstances, the market value of any interest or right relating to ownership of the dwelling is to be included. No account is to be taken of the effect of the existence of the interest due to the fact that they are either a beneficiary or a liferenter.
The question regarding whether an "only or main residence" is being replaced applies only to purchases by an individual.
This does not include individuals who are acting either as a sole trader or in a partnership of which that individual is a partner, in the course of a business where the sole or main activity is investing or dealing in property. It also does not apply to purchases by non-natural persons.
Where you are a buyer who owns only one dwelling at the end of the day that is the effective date of a transaction, you will not pay the ADS. The question of whether or not a main residence is being replaced does not arise.
Note: in the case of joint buyers in considering whether the ADS should apply, if only one joint buyer is not replacing their only or main residence, then both buyers are treated as not replacing their only or main residence. Similarly, if only one joint buyer owns more than one dwelling, the ADS will apply if either buyer has not replaced an only or main residence.
You will need to determine whether you have replaced a main residence only if you own two or more properties at the end of the day that is the effective date of a transaction.
Where a main residence is being replaced, the ADS will not apply. This is likely to be the case in the vast majority of standard residential transactions as, in most cases when you move house, you will purchase your new main residence and sell your previous main residence on the same day.
For further guidance see: LBTT10070 - Amendments to returns and repayment claims for the ADS
Determining an individual’s main residence
There is a two stage test to follow to decide if a dwelling is a main residence.
For the purposes of the ADS, you can have only one main residence at a time. In most cases where you own more than one dwelling it will be clear which one is your main residence.
It is not possible to elect which dwelling is your main residence for the ADS. Instead, your main residence is usually where you live and spend most of your time. A main residence can be somewhere you own, rent or live in free of charge. However, if your main residence is rented or you live there free of charge and do not own the dwelling, moving out of this dwelling is not considered replacing a main residence for the purposes of the ADS.
Your main residence is usually where:
- most of your possessions are
- where your family lives, if you are married or in a civil partnership, or you live with your children
- where you are registered with various organisations, banks, GP or an insurance company
- where you are a member of clubs and societies
- if you have children, where they go to school
- where you are registered to vote
You may spend less time in your only or main residence than in another residence, for example, if you live away for work or study during the week. This will be taken into account for the purposes of determining your only or main residence.
There is a difference between spending less time in your only or main residence, and spending no time in the property. It is highly unlikely a property can be viewed as your only or main residence if you have spent no time there in the 18 month period or if the property was rented out and not available to you during this period.
Replacing a main residence - the two stage test
To determine if a purchase of a dwelling is a replacement for a main residence is a two stage test.
A buyer is replacing their only or main residence if:
- The buyer disposes of their only or main residence during the 18 months before the effective date of the transaction for the new dwelling, and
- The buyer intends to occupy the new dwelling as their only or main residence on the effective date of the transaction.
Note: A disposal can only be made on a property which is owned. Leaving a rented property is not considered a disposal for the purposes of the ADS. The use of ‘dispose’ is in relation to legal terminology for the sale / transfer of land in Scotland.
The dwelling sold must have been the buyer’s only or main residence. This must have been at some point in the 18 months before the effective date of the transaction. Evidence must be available to show this was the case. Whether the buyer intends to use the newly purchased dwelling as their only or main residence is a prospective test. Where an individual has made plans at the effective date to move into the new dwelling as their only residence, it will be obvious that the intention test is met. In such a case, the ADS will not apply.
If both stages are met, the ADS will not apply.
Evidence that clearly shows the ADS will apply:
- another dwelling will continue to be the buyer’s main residence
- the purpose of the newly purchased dwelling is not as a main residence for the buyer
- the purchase is in the course of a business where the sole or main activity is investing or dealing in property
Yellow owns two dwellings. House 1 is Yellow's main residence, but they also own a buy-to-let dwelling.
Yellow sells House 1 in November and, on the same day, purchases a new dwelling (House 2), however, they do not intend to use House 2 as their NMR. They still own their buy-to-let dwelling. Although Yellow owns two dwellings at the end of the effective date and Yellow has replaced their PMR, they do not intend to live in House 2 as their only or main residence and so the ADS will apply.
Purple owns one dwelling. House 1 is Purple's main residence, but they are looking to purchase a new dwelling.
Purple purchases a buy-to-let dwelling in November. Purple owns two dwellings at the end of the effective date. They do not intend to live in the new property as their NMR and they are not disposing of their PMR, so the ADS will apply.
Note: the same would apply if House 1 became the buy-to-let dwelling and Purple moved into the new dwelling as their NMR. This is because the PMR would not have been disposed of.
In June, Red sells their MR (House 1). Red also owns a holiday home (House 2).
Since the sale of their PMR, Red has been living in rented accommodation but still owns their holiday home.
In February, Red purchases a dwelling (House 3) which they intend to use as their NMR. They move out of their rented accommodation. Red still owns a holiday home (House 2). At the end of the effective date, Red owns two dwellings, but as they have replaced their PMR (House 1) in the previous 18 months and they intend to live in the NMR as their only or main residence (House 3), the ADS will not apply.
The amount of LBTT to be paid on a property transaction is calculated by applying the tax rates and bands to the amount of chargeable consideration for the transaction.
The ADS that will be payable under the LBTT(S)A will be charged at 4% of the relevant consideration for a transaction.
For transactions relating to a residential property transaction, the relevant consideration to which the ADS will be applied will be the chargeable consideration for that transaction. The chargeable consideration for a transaction is usually any money given for the property, directly or indirectly, by the buyer or a person connected with the buyer. For the vast majority of residential property transactions, the "relevant consideration" will therefore be the purchase price.
For property transactions that include both residential and non-residential elements, the ADS that will require to be paid will be charged on the proportion of the chargeable consideration for the residential element of the transaction only. Where a process of just and reasonable apportionment determines that less than £40,000 of the chargeable consideration paid for a transaction involving residential and non-residential property relates to the residential element, the ADS will not apply.
Where the transaction also includes the acquisition of another property as well as the one the buyer intends to occupy as their only or main residence, the ADS will be due. Where this applies, the chargeable consideration subject to the ADS excludes, on a just and reasonable basis, the amount attributable to the acquisition of the property for which they intend to use as their only or main residence.
For further guidance see:
- LBTT2001 - Determining the chargeable consideration
- LBTT2002 - What is chargeable consideration
- LBTT2009 - What is not chargeable consideration
- LBTT2016 - Meaning of market value
- LBTT(A)(S)A 2016, Schedule 2A, Paragraph 4