This is a follow-up to the BPUs for January 2016 and May 2017 concerning the “Additional Dwelling Supplement” (“ADS”) payable in addition to Land and Buildings Transaction Tax (“LBTT”) for second homes.
The story is now getting a bit convoluted. But, in outline, the requirement to pay ADS could work unfairly in cases where a couple were jointly buying a new home to replace a former home which was owned by only one of them. That result however was, as it transpired, unintended. So, new rules – effective from 30th June 2017 – were introduced to avoid that result. But they were only to do so for the future. So, couples in such circumstances who had already had to pay the ADS lost out.
Now however, in line perhaps with the Christmas spirit, legislation is in the pipeline so that there will be scope for those couples who were caught by the “unintended consequences” of the old rules in the period before June 2017 to reclaim the tax.
But first a bit of a re-cap:
- ADS is on top of the normal LBTT which applies when buying a home.
- ADS applies on purchases of additional residential properties – such as buy-to-let properties and second homes.
- The ADS is 3 per cent of the total purchase price of an additional residential property purchase of £40,000 or more.
The “unintended consequences” – fixed for the future in June 2017
- ADS applies where the buyer owns more than one “dwelling” and “the buyer is not replacing the buyer’s only or main residence”.
- When it comes to couples, the old rules had the effect that if any one of two joint buyers was “not replacing the buyer’s only or main residence” then ADS would apply to their joint purchase of a new home.
- So, for example, suppose Mr and Mrs X lived in a property (“the Old Home”) which Mr X owned in his sole name; and suppose, under the old rules, they decided to move and buy a replacement home (“the New Home”) in their joint names.
- In those circumstances, one of the buyers of the New Home – Mrs X – did not own any part of the Old Home and so cannot have “disposed of [its] ownership” as a dwelling. Accordingly she could not be taken to have “replaced” it – because in order to count as having done so she’d have to have owned part of it in the first place. So, ADS would have applied to their joint purchase of the new Home.
- But, as mentioned, ADS was not intended to apply in this way in such circumstances – hence the change to the rules from 30th June 2017 to “fix the blip” in the Land and Buildings Transaction Tax (Additional Amount-Second Homes Main Residence Relief) (Scotland) Order 2017 (“the 2017 Order”).
- That “fixing of the blip” however applied only for the future.
A New Year gift?
- A new Bill, introduced to the Scottish Parliament last month (catchily called the Land and Buildings Transaction Tax (Relief from Additional Amount)(Scotland) Bill) is designed to provide that the “fixing of the blip” from June 2017 should apply not only for the future but also for the past.
- The Bill does so by giving retrospective effect to the “fixing the blip” amendments made from 30th June 2017 in the 2017 Order.
- As mentioned, before that date ADS was chargeable if spouses, civil partners or co-habitants were jointly buying a home to replace a home that was owned by only one of them.
- The 2017 Order changed things to provide relief from ADS in this scenario for all qualifying future transactions where buyers entered into the contract to purchase a new main residence on or after 20 May 2017 and “settlement” of the transaction was on or after 30 June 2017.
- The Bill however aims to give retrospective effect to the 2017 Order, enabling qualifying buyers who have paid ADS before the 2017 Order had effect to claim a repayment and it aims to provide this relief regardless of the date when joint buyers entered into the contract and regardless of the date of settlement of the transaction.
Note: This material is for information purposes only and does not constitute any form of advice or recommendation by us. You should not rely upon it in making any decisions or taking or refraining from taking any action. If you would like us to advise you on any of the matters covered in this material, please contact Alison Gourley: Alison@mitchells-roberton.co.uk