There are various exemptions to the ADS and reliefs available for the ADS which are described below.
Additionally, there was an amendment to the LBTT(S)A from 30 June 2017 to rules for family units replacing their main residence, which can be found at Paragraph 9A. Further guidance on these rules can be found at: LBTT10062, Paragraph 9A.
Exemptions – Gifted and inherited dwellings
For any transaction exempt from LBTT, e.g. a gift of a dwelling, the ADS will not apply.
If you inherit a dwelling, the ADS will not apply.
However, gifted and inherited dwellings will count towards the number of dwellings owned. The number of dwellings owned determines any ADS due on future transactions.
For further guidance see: LBTT(S)A 2013, Schedule 1, Paragraph 1
Reliefs for LBTT apply to transactions involving the purchase of additional dwellings. These reliefs include house builders involved in partial exchange, certain transactions by social landlords and certain compulsory purchases by local authorities.
If partial relief is due on LBTT, any ADS due will be on the same proportion as the LBTT.
For further guidance see:
When calculating tax due at residential rates, the ADS is normally included. The ADS is not applied to non-residential transactions.
Relief from the ADS for purchases of 6 or more dwellings
There is also a specific ADS relief for purchases of six or more separate dwellings.
When six or more separate dwellings (involving the transfer or purchase of a major interest) are the subject of a single transaction they are treated as non-residential property.
For further guidance see: LBTT(S)A 2013, SECTION 59(8)
The interaction of the ADS with multiple dwellings relief (MDR)
The rules for Multiple Dwellings Relief (MDR) are set out in Schedule 5 of the LBTT(S)A 2013. There are slight amendments for transactions when the ADS is payable and MDR is claimed.
For an MDR calculation, the following applies:
- DT means tax due in relation to a dwelling
- ND means number of dwellings
- RT means tax due in relation to remaining property (not a dwelling)
- ∑ means the sum of (total)
For MDR the calculation is:
(DTxND) + RT
When ADS is due and MDR claimed the calculation is:
- Work out the tax due on each dwelling (DT)
- Add them all together
The calculation becomes ∑DT
In the majority of cases, DT will be the same for each dwelling. The calculation is on the basis of average consideration, which is the total consideration divided by the number of dwellings purchased. Each calculation will produce the same result.
The result is different when the ADS is payable on some but not all of the dwellings. This may be because one of the dwellings is a replacement main residence. The ADS does not apply to the replacement of a main residence.
When this is the case, calculate the tax due on each dwelling individually. Apply the ADS to the calculation of the tax due for the applicable dwellings only.
For further guidance see:
- LBTT(S)A 2013 Schedule 5
- LBTT3015 Multiple dwelling relief
- The Land and Buildings Transaction Tax (Additional amount – Second homes main residence relief) (Scotland) Order 2017 (SSI Order 2017)
Yellow owns a dwelling which they use as their MR (House 1). Yellow inherits a share of another dwelling from their parents (House 2). The inherited dwelling will count as an owned dwelling for any future purchases made, irrespective of the percentage share, as long as the whole property is above £40,000. In November, Yellow decides to purchase a buy-to-let dwelling. At the end of the effective date, Yellow will own three dwellings (House 1, House 2 and the newly purchased buy-to-let property).The ADS will apply. Note: it does not matter where the inherited dwelling is based, it can be anywhere in the world and would still count for the purposes of counting the number of dwellings for ADS purposes.
Red Limited are purchasing a house split into 8 flats in one transaction. The company does not own any other dwellings. As the house has been split into 8 parts, each of which can be used as a single dwelling, at the end of the day that is the effective date for the transaction, the company owns 8 dwellings. However, 100% relief from the ADS is available for a transaction in which any buyer (individuals and non-individuals) purchases six or more separate dwellings in a single transaction. Red Limited will still pay LBTT for the property transaction, but will not have to pay the ADS. Note: the relief would not have been available if the eight dwellings had been purchased in two separate transactions, neither of which comprised a transaction of six or more residential properties.