Multiple Dwellings Relief (ADS payable)

Mrs Leith acquires two houses and a workshop for £400,000. One of the residential properties will be the replacement of her main residence, however the second will be subject to Additional Dwelling Supplement (ADS).

The chargeable consideration has been apportioned on a just and reasonable basis as follows:

Main residence - £200,000

Additional house - £100,000

Workshop - £100,000

The amount of tax due in relation to the transaction is:

∑DT + RT

where:

∑DT is the sum total of tax due in relation to all the dwellings

RT is the tax due in relation to remaining property

Calculation of DT

Tax due in relation to a dwelling:

Step 1 – Find the total consideration attributable to dwellings.

This is £300,000.

Step 2 – Divide the total consideration attributable to dwellings by the number of dwellings.

£300,000 / 2 = £150,000

Step 3 – Calculate the amount of tax due in relation to the dwellings using the chargeable consideration from Step 2, using tax rates and bands for residential transactions.

A residential dwelling of £150,000 which is the replacement of a main residence will incur tax of £100.

In total, a residential dwelling of £150,000 which is liable to ADS will incur tax of £6,100 (100 + £6,000).

So ∑DT in this case is £100 + £6,000 = £6,100

Calculation of RT

Step 1 – Calculate the amount of tax that would be due in respect of the transaction in the absence of the relief.

The two houses and the workshop are chargeable at non-residential rates.

The tax chargeable for the transaction, based on a chargeable consideration of £400,000 calculated at non-residential rates, therefore £8,500.

ADS of £4,000 (£100,000 x 4%) is also chargeable on the additional house, so the total tax is therefore £8,500 + £4,000 = £12,500.

Step 2 – Divide the consideration attributable to remaining property by the chargeable consideration for the transaction.

i.e. 100,000 / 400,000 = a fraction of 1/4^th.

Step 3 – Multiply the amount calculated in step 1 by the fraction reached in step 2.

i.e. £12,500 x 1/4^th = £3,125 i.e. the tax due in relation to remaining property (RT).

Applying the minimum prescribed amount of tax to the part of the transaction relating to dwellings

Where ∑DT is less than the minimum prescribed amount, the amount of tax chargeable in relation to the relevant transaction is:

MPA + RT

where:

MPA is the minimum prescribed amount, and

RT is the tax due in relation to remaining property.

Calculating the minimum prescribed amount

The minimum prescribed amount (MPA) is 25% of:

TT – RT

where:

TT is the amount of tax that would be due in respect of the transaction but for the relief; and

RT is the tax due in relation to remaining property.

As determined in Step 1 of ‘Calculation of RT’, the amount of tax that would be due in respect of the transaction but for the relief is £12,500. TT is therefore £12,500.

As determined in Step 3 of ‘Calculation of RT’, the amount of tax due in relation to remaining property, RT, is £3,125.

The minimum prescribed amount (MPA) is therefore 25% of (£12,500 - £3,125) = £2,343

Because ∑DT (£6,100) is greater than MPA, the amount of tax that is chargeable in relation to the transaction (after the application of multiple dwellings relief) is:

∑DT (£6,100) + RT (£2,343) = £7,512

The minimum prescribed amount of 25% is provided for in The Land and Buildings Transaction Tax (Prescribed Proportions) (Scotland) Order 2014.