ADS rules for particular transactions and buyers

ADS rules for particular transactions and buyers

LBTT10016 - Transactions by individuals

The ADS will only apply where a buyer (or any one individual in a group of buyers) owns two or more dwellings at the end of the day that is the effective date of a transaction and is not replacing their only or main residence.

The ADS will never apply if, at the end of the day that is the effective date of the transaction, a buyer (or group of buyers) owns or are deemed to own only one dwelling, unless that dwelling is acquired in the course of a business, the sole or main activity of which is investing or dealing in property.

The first dwelling can be a buy-to-let dwelling. The ADS will not apply where an individual purchases a first buy-to-let dwelling and that individual:

1. does not own any other existing dwelling at the end of the effective date of the transaction and
2. is not 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.

Full relief is available from the ADS for any transaction in which a buyer (or group of buyers) purchases six or more residential properties in one transaction.

Where an individual jointly owns a property and at a later date acquires a further share of that property, we consider that ADS will not apply to these additional transactions. However, the additional transactions may still be notifiable and chargeable to LBTT (without ADS) if any consideration is paid, or debt assumed. Our guidance at LBTT2003 - Debt as consideration should be consulted in such cases.

Where an individual owns more than one dwelling and they are replacing their only or main residence but the transaction also includes the acquisition of another property as well as the one they intend 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. It follows that if a repayment is sought, the repayment will only be in relation to the amount of ADS which was paid in the first instance.

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LBTT10017 - Transactions by non-individuals

A non-individual is not regarded as replacing their only or main residence. The ADS will therefore apply to every purchase of a dwelling in Scotland by a non-individual other than certain trust transactions.

The ADS will also apply to all purchases by an individual, acting either as a sole trader or in a partnership of which that individual is a partner, in the course of a business the sole or main activity of which is investing or dealing in property.

Non-individuals are non-natural persons, such as companies, investment trusts or any other corporate entity.

The ADS applies to chargeable transactions by non-individuals if they meet the following conditions:

• the transaction consists of or includes the purchase or ownership of a dwelling in Scotland,
• the chargeable consideration for the transaction is £40,000 or more,
• the buyer is not an individual or,
• the buyer is an individual and either of the following applies:

1. The purchase is made in the course of a business of the individual where the individual is acting either as a sole trader or as a partner in a partnership where the sole or main activity of the business is investing or dealing in chargeable interests. Chargeable interests includes any interest which would be a chargeable interest but for the fact that it relates to land out with Scotland.

2. The individual is making the purchase as trustee under a settlement where there is no interested beneficiary for the dwelling.

Note: a beneficiary under the settlement is an interested beneficiary in relation to a dwelling if the beneficiary has or will have a relevant interest in the dwelling. A relevant interest means they are entitled to occupy the dwelling for life or entitled to income in respect of the dwelling.

Full relief is available from the ADS for any transaction in which a buyer purchases six or more residential purchases in one transaction.

Examples

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LBTT10061 - Transactions involving joint buyers

Joint buyer rules apply to two or more buyers purchasing a dwelling. There are many scenarios where two or more people purchase a dwelling together. The term joint buyers is not restricted to couples.

Where two or more buyers each have a share of the ownership of a dwelling, each buyer who is jointly entitled is deemed to be the owner the dwelling. It does not matter the size of the share. Equally, where two or more buyers are entitled/have a right to the ownership of a dwelling but have not taken title to that dwelling, each buyer who is jointly entitled to the ownership of the dwelling is deemed to be the owner of the dwelling. For example, if siblings were to inherit equal shares in the ownership of a dwelling, each sibling would be treated as the owner of the dwelling.

This means each joint buyer is classed as the buyer in a property transaction.

Where one or more joint buyers owns more than one dwelling at the end of the day that is the effective date, the ADS will apply. Unless the main residence of each joint buyer who owns more than one dwelling is being replaced.

In other words, where there are joint buyers of a dwelling and either or both own an existing main residence, unless both of the joint buyers have sold their previous main residence before (or on the effective date) they acquire the new dwelling, the ADS will apply.

Where one of the joint buyers in a transaction to purchase a dwelling is a non-individual, the ADS will automatically apply to every residential transaction (other than certain trust transactions as detailed in part LBTT10063 of the guidance) and the position relating to the replacement of a previous main residence will not apply.

The ADS will not apply to transactions where a person (whether an individual or a non-individual) is acquiring a further part of a property which they already jointly own. Note that the transaction may still be notifiable and chargeable to LBTT (without ADS) if any consideration is paid, or debt assumed.

SSI Order 2024

For transactions with an effective date on or after 1 April 2024

If a buyer owns a share valued at less than £40,000, the dwelling will not count towards the number of dwellings owned.

Repayment conditions within legislation have been changed for joint buyers only one of the buyers are required to meet repayment conditions:

a) within the period of 36 months beginning with or ending with the day after the effective date of the transaction, the buyer or, where there are two or more buyers who are or will be jointly entitled to the interest acquired, one of the buyers disposes of the ownership of a dwelling (other than one that was or formed part of the subject-matter of the chargeable transaction) (one buyer)

b) that dwelling was the buyer’s or where there are two or more buyers who are or will be jointly entitled to the interest acquired, one of the buyer’s only or main residence at any time during the period of 36 months ending with the effective date of the transaction, and (one buyer)

All buyers are required to meet the following repayment condition:

c) the dwelling that was or formed part of the subject-matter of the transaction has been occupied as the buyer's only or main residence. (all buyers)

Additional condition:

d) where there are two or more buyers who are or will be jointly entitled to the interest acquired, each of whom own a dwelling or dwellings other than the subject-matter of the transaction, all of the buyers must meet the conditions a), b) and c). (all buyers)

Therefore, for joint buyers where a further property is owned by the second or subsequent buyer a repayment of the ADS is not applicable unless all buyers have replaced a previous main residence. 

For further guidance see: LBTT(S)A 2013 Schedule 2A – Paragraphs 5 & 17.

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LBTT10062 - Transactions involving spouses/civil partners/cohabitants and their dependant children

Married couples, those in a civil partnership and cohabitants (those living together as though married), along with their dependant children (children under 16, including adopted children), are treated as one economic unit for the purposes of determining how many properties a buyer owns at the end of the day that is the effective date of the transaction.

Equally, where a buyer's spouse, civil partner, cohabitant or a dependant child is entitled/has a right to the ownership of a dwelling but has not taken title to that dwelling, that buyer will be deemed to be the owner of that dwelling. For example, if a buyer's spouse were to inherit the ownership of a dwelling, that buyer would be treated as the owner of the dwelling.

This section does not apply if the buyer and their spouse or civil partner have separated. They have separated if they no longer live together and they do not intend to live together again.

The ADS will apply where one spouse/civil partner/co-habitant owns the existing shared home and the other spouse/civil partner/co-habitant purchases an additional dwelling. The ADS would be chargeable on the additional purchase, meaning the LBTT liability would be the same whether they jointly own the existing shared home or not and then jointly or individually buy an additional dwelling.

For transactions with an effective date on or after 1 April 2024

There is an exception if a buyer meets the following conditions:

• owns two dwellings at the end of the effective date
• the first dwelling was at any time their previous main residence, with a spouse, civil partner, former spouse, or former civil partner
• the first dwelling remains the main residence of the buyer’s spouse, civil partner, former spouse, or former civil partner
• there is no intention to live together again as civil partner or spouse
• the ownership retained in the first dwelling is due to a court order or formal agreement in connection with:
  •  dissolution or annulment of the civil partnership
  • Separation or divorce 

In such cases the purchase of a second dwelling is exempt from the ADS.

The ADS will also apply to the purchase by an individual who does not own an existing dwelling but who has a spouse, civil partner, cohabitant, dependant child or dependant child of their spouse, civil partner or cohabitant who does own an existing dwelling.

The inclusion of children under 16 within the meaning of "buyer" for the purposes of the LBTT(S)A 2013 reflects the fact that such a child's ownership of residential property is practically the responsibility of their parent(s), and is an anti-avoidance measure to disincentivise avoidance of the ADS by artificially registering title in a child's name.

Spouses, cohabitants and civil partners

The SSI Order 2017 made amendments to the ADS legislation in connection with spouses, cohabitants and civil partners. The amendments came in to force on 30 June 2017 and provide relief from the ADS where spouses, civil partners and cohabitants jointly buy a new main residence but the previous main residence they are replacing is owned by only one of them.

The Land and Buildings Transaction Tax (Relief from Additional Amount) (Scotland) Act 2018 made the changes introduced by the 2017 Order retrospective. This means that eligible transactions where the contract was entered into on or after 28 January 2016, and where the effective date of the transaction is on or after 1 April 2016, will now be able to claim a relief/repayment.

Paragraph 9A provides relief from the ADS in certain circumstances when two buyers jointly buy a new dwelling and currently live together as a married couple, civil partners or cohabitants in a dwelling owned by either one of them solely.

Prior to the SSI order 2017 any transactions:

• where spouses or cohabitants jointly bought a dwelling, and
• prior to the purchase they sold a dwelling that they both lived in but was owned by only one of them, and
• at the effective date of the new joint purchase either buyer owned or was deemed to own a further dwelling,
   

then the ADS would apply to the purchase because both buyers were not replacing their main residence, as the previous main residence was owned by only one of them.

However, the SSI Order 2017 introduces relief that means in circumstances where only one buyer has disposed of their ownership of a dwelling, the joint purchase made by the buyers would not attract the ADS if the property sold was the only or main residence of both the joint buyers and they both intend to live in the new property as their only or main residence. 

Paragraph 8A is in connection with repayment of the ADS paid on transactions where the joint buyers are spouses, civil partners or cohabitants where only one buyer owned their previous main residence and they sold that previous main residence.

Prior to the SSI Order 2017:

• where spouses, civil partners or cohabitants jointly bought a dwelling, and
• after that purchase, but within 18 months of it, they sold their previous main residence, and
• that previous main residence was owned by one of them only,
   

then the ADS would be payable on the purchase and the buyers would not be able to reclaim the ADS paid because they were not both replacing their main residence. 

However under paragraph 8A, the ADS will still be due and payable (because at the end of the day on which the purchase is made one of the buyers owns more than one dwelling) but when the previous main residence is sold (within 18 months of the purchase), the buyers will be able to reclaim the ADS paid if the dwelling sold was the main residence of both joint buyers and they have both been occupying the new property as their only or main residence.   

For further guidance see: LBTT10020 - How to determine if an ‘only or main residence’ is being replaced

SS1 2024

For transactions with an effective date on or after 1 April 2024

Paragraph 8 has been updated to reflect the following:

For joint buyers including spouses, civil partners, and cohabitants only one of the buyers are required to meet repayment conditions:

a) within the period of 36 months beginning with or ending with the day after the effective date of the transaction, the buyer or, where there are two or more buyers who are or will be jointly entitled to the interest acquired, one of the buyers disposes of the ownership of a dwelling (other than one that was or formed part of the subject-matter of the chargeable transaction)

b) that dwelling was the buyer’s or where there are two or more buyers who are or will be jointly entitled to the interest acquired, one of the buyer’s only or main residence at any time during the period of 36 months ending with the effective date of the transaction, and 

All buyers are required to meet the following repayment condition:

c) the dwelling that was or formed part of the subject-matter of the transaction has been occupied as the buyer's only or main residence.

Additional condition:

d) where there are two or more buyers who are or will be jointly entitled to the interest acquired, each of whom own a dwelling or dwellings other than the subject-matter of the transaction, all of the buyers must meet the conditions.

Therefore, for joint buyers where a further property is owned by the second or subsequent buyer a repayment of the ADS is not applicable unless all buyers have replaced a previous main residence. 

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LBTT10063 - Transactions involving Trusts

Property is sometimes held in trust by trustees and, to ensure the fairness, integrity and consistency of the LBTT regime to all, the ADS will apply to certain purchases made by trusts.

Purchases by a trustee on behalf of a trust (that is not a bare trust) and where the beneficiaries have no relevant interest will always be liable for the ADS, irrespective of whether the trustees own an existing property or not. This means acquisition by such trustees are treated in the same way as acquisitions by non-individuals. 

Bare Trusts

For the purposes of LBTT, the beneficiaries of bare trusts are treated as the buyer when a trustee or trustees on behalf of a trust purchases a property.

A bare trust is a trust under which the property is held by a person as trustee:

• for a person who is absolutely entitled as against the trustee, or who would be so entitled but for being under a legal disability by reason of non-age or under another disability, or
• for two or more persons who are or would be jointly so entitled, and
• includes a case in which a person holds property as nominee for another.

Absolutely entitled refers to a case where the person has the exclusive right, subject only to satisfying any outstanding charge, lien or other right of the trustee to resort to the property for payment of duty, taxes, costs or other outgoings, or to direct how the property is dealt with.

Where the buyer in a transaction to purchase a dwelling is the trustee of a bare trust, the beneficiary is treated by the LBTT(S)A 2013 as the buyer in that transaction for the purposes of determining whether the ADS will apply. Where title to a dwelling in such a transaction is taken by the trustee under a bare trust, the buyer of the dwelling is deemed to be the beneficiary under that trust. This is the case irrespective of whether the trustee registers the title in the Land Register or not.

Other Trusts

Where the buyer is the trustee of a settlement and the beneficiary under the settlement has a relevant interest in a dwelling that is or forms part of the trust property, the beneficiary is treated as the buyer.

A relevant interest in a dwelling that comprises or forms part of the trust property, in respect of a beneficiary under a settlement, exists where, under the terms of that settlement, the beneficiary is entitled to occupy the dwelling for life or income earned, whether net or gross, in respect of the dwelling.

Where title to a dwelling is taken by the trustee under such a settlement, and the beneficiary under that trust has a relevant interest in the dwelling, the owner of the dwelling is deemed to be that beneficiary. This is the case irrespective of whether the trustees register the title in the Land Register or not.

Spouses, civil partners, cohabitants and dependant children

Any dwelling owned by a spouse, civil partner, cohabitant or child under the age of 16 of a beneficiary with a relevant interest under a bare trust or settlement trust will potentially count towards the number of dwellings owned by the buyer. The buyer in these cases is the beneficiary and not the trustee who makes the purchase on behalf of the bare trust or settlement trust.

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LBTT10064 - Transactions involving proper liferents

Sometimes, when residential property is purchased, the buyer grants a proper liferent to a third party (the liferenter). This liferent is a right to enjoy the use and benefit of the property for the lifetime of the liferenter (or some other time period as set out in the deed which creates the liferent). On termination of the liferent, title will vest in another person known as the “fiar”.

Note: Proper liferents differ from "improper (or beneficial) liferents" which are created by Settlement Trusts (Liferent Trusts), whereby the liferenter enjoys the benefit of property by way of a trust.

For the purposes of determining whether the ADS is applicable, the LBTT(S)A 2013 provides that the liferenter is treated as the owner of the dwelling (deemed ownership), and that both the granter of the liferent and the fiar are to be treated as not being the owner. This is the case irrespective of whether the fiar registers their title in the Land Register or not.

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LBTT10065 - Transactions involving certain long leases

Standard residential leases, for example short assured tenancies, are exempt from LBTT, therefore, dwellings under a standard residential lease will not count towards the number of dwellings owned by a buyer.

However, where a buyer is a tenant of a dwelling under a long residential lease (a lease of residential property for a term in excess of 20 years), this may require to be counted as a dwelling owned by that buyer.

Long leases

Residential property leases for 20 years or more are long residential leases. A tenant with a long lease will be treated as the owner of the dwelling. The landlord will not be treated as the owner. A long residential lease will be counted as a dwelling owned by a buyer for the purposes of the ADS.

Due to The Land Tenure Reform (Scotland) Act 1974, leases of 20 years or more are no longer granted in Scotland.

All long residential leases granted prior to the commencement of the 1974 Act which comprised a "qualifying lease" of residential property automatically converted to ownership on 28 November 2015 by virtue of the Long Leases Act.

A "qualifying lease" under the Long Leases Act, in respect of residential property, is generally, a lease which, immediately before 28 November 2015, was:

(a) registered;

(b) granted for a period of more than 175 years and had more than 100 years remaining;

(c) had an annual rent of under £100.

Broadly, qualifying leases are comparable to "leasehold" title in England and Wales.

Where a buyer in a transaction has an interest in a dwelling held under a long residential lease which either did not fulfil the statutory conditions for conversion to ownership required by the Long Leases Act or was exempt from conversion under that Act, that dwelling will require to be counted as a dwelling owned by that buyer.

Any dwelling in either the rest of the UK or the rest of the world in which a buyer in a transaction has an interest on a leasehold basis equivalent to ownership in Scotland will require to be counted as a dwelling owned by that buyer for the purposes of the LBTT(S)A 2013.

For the avoidance of doubt, the provisions of the LBTT(S)A 2013 directly apply to any transaction in which the buyer acquires a "qualifying lease" of residential property. Where a buyer acquires such an interest in a dwelling held under a qualifying lease, the interest acquired is not a tenant's interest, but an ownership interest. Accordingly, the transaction will attract both LBTT at the standard residential rates and, if applicable, the ADS. Where the new acquisition is of a long residential lease that is not, for technical reasons, a ‘qualifying lease’, the transaction will be exempt under Schedule 1 to the LBTT(S)A 2013, although as mentioned the interest acquired will be counted as ownership for the purposes of counting owned properties under schedule 2A where purchases of additional dwellings are made.

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LBTT10066 - Transactions involving inherited dwellings

Individuals do not pay LBTT or the ADS on dwellings that they inherit. However, inherited dwellings will count towards dwellings owned by a buyer for the purposes of the ADS.

The period during which the personal representatives are settling the estate is called the period of administration. It starts on the day following the date of death of the deceased person and ends when the personal representatives have taken all the steps necessary to complete the administration of the estate.

The question of when an administration period ends is essentially one of fact and will depend on individual circumstances. Generally, this is the date when the residue of the estate has been ascertained or can be identified. The date when final accounts have been (or should have been) prepared is often taken as the date when the administration was completed.

An inherited dwelling counts as being owned by a beneficiary from the earlier of:

• the date that the period of administration of the estate ends based on the above
• the date the dwelling is transferred to the beneficiary (the date the executor grants and delivers a disposition or a docket transfer in favour of the beneficiary, whether or not registration of title is at a later date)
• under the law in another country, when the deceased’s interest passes to the beneficiary as an heir to the estate
• the date when the interest is actually transferred from the personal representative to the beneficiary in satisfaction of a bequest of that particular dwelling
• the date when the interest is actually transferred from the personal representative to the beneficiary in satisfaction of a pecuniary legacy or an interest in residue, following agreement with the beneficiary to accept the interest

If an individual owns a dwelling in their capacity as a personal representative (i.e. an executor) then they are deemed for the purposes of the LBTT(S)A 2013 not to be the owner of that dwelling. 

For transactions with an effective date on or after 1 April 2024

Inherited properties exception

When counting the number of dwellings owned for the purposes of the ADS, the following applies:

• if on the effective date the buyer owns two dwellings

and

• the buyer has inherited a dwelling through transfer or conveyance from executors

and

• the date on which they acquire the inherited dwelling is:
• after they enter into a contract to purchase a dwelling 
  but 
• before the date of completion of this transaction

The inherited dwelling will not count for the number of dwellings owned for ADS purposes.

Examples

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LBTT10067 - Transactions involving dwellings for children to live in

Parents often help their children onto the property ladder. The ADS may be due on some of these property transactions. This will depend on the structure of the transaction and who will be the owner of the purchased dwelling.

Examples

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LBTT10018 - Transactions involving residential properties

Most property transactions that will be liable to the ADS will be residential property transactions.

Residential property transactions are transactions where the main subject-matter of the transaction consists entirely of an interest in land that is residential property or, where the transaction is one of a number of linked transactions, the main subject-matter of each transaction consists entirely of such an interest.

All transactions involving residential properties have the potential to be affected by the ADS.

For further guidance see: LBTT4010 - Meaning of residential property

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LBTT10019 - Transactions involving non-residential properties

Generally, the ADS does not apply to non-residential property transactions.

Non-residential property transactions are where either:

1) the main subject-matter of the transaction consists of or includes an interest in land that is not a residential property or b) where the transaction is one of a number of linked transactions, the main subject-matter of any transaction consists of or includes such an interest or

2) where six or more separate dwellings are the subject of a single transaction involving the transfer of a major interest in them.

Full relief from the ADS is available on the purchase of six or more residential properties in one transaction. This applies to both individuals and non-individuals.

However, some transactions may include non-residential property and the ADS will apply, in part, to those transactions.

Where applicable, the amount of ADS that will apply will be 8% of the part of the chargeable consideration for that transaction attributable to the residential dwelling or dwellings. The chargeable consideration attributable to the residential dwelling or dwellings is calculated on the basis of a just and reasonable apportionment.

Examples

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