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Scotland’s second home tax – could this be time for change?

Scotland’s second homes tax, formally known as Additional Dwelling Supplement (“ADS”), could be facing overhaul after claims that hundreds of Scottish homeowners are facing unfair charges as a result of flaws in the tax system. ADS liability was introduced by the Scottish government in 2016 and is intended to kick in when buying a home in Scotland if you already own or have an interest in a property either elsewhere in Scotland or abroad. Therefore, on top of Land and Buildings Transaction Tax, Scottish homeowners are required to pay ADS at a rate of 4% of the purchase price of their second home.

However more recently, Public Finance Minister Kate Forbes has admitted that she is ‘sympathetic’ to hundreds of people who are not the intended targets of ADS but are still being hit by the tax as a result of ‘anomalies’. Examples include individuals who inherit property, but are thereafter hit with ADS when they come to buying their own home. Others affected are those who purchase a property with a granny flat or accessory apartment contained in it who require to pay ADS in the same way as somebody with two separate properties. In addition, couples who have not previously resided together before buying a new home are being charged ADS as a result of one of them owning another property. As ADS applies extra-territorially, even individuals who move to Scotland and wish to buy a home to live in are liable for ADS if they own a property anywhere else in the world.

Therefore, calls have been made by politicians to legislate in an attempt to rectify the problems with ADS. However, it remains to be seen what steps the government will take to address any injustices in Scotland’s second home tax system.