15 May 2020

Emergency laws to help movers hit by 'second home tax'

Emergency laws to help movers hit by 'second home tax'

Emergency legislation has been tabled to help home movers hit by COVID-19 delays.

People who bought a new house before selling their old home are being given an extra nine months to reclaim their 4% Additional Dwelling Supplement (ADS), Scotland's tax on second homes.

Movers are traditionally given 18 months to sell their old home and claim the rebate, which can often run into tens of thousands of pounds. However, many have been left struggling to meet the deadline following the temporary closure of the application record by the Keeper of the Registers of Scotland in March.

The Scottish Government has listened to concerns and has included changes in its Coronavirus (Number Two) (Scotland) Bill, which is expected to be passed by the Scottish Parliament next week.

Under the legislation, individuals who bought a new main residence between 24 Sep 2018 and 24 March 2020 and paid ADS will now have 27 months to sell their previous main residence.

The draft legislation also gives the Scottish Government power to extend the 27 month period further, or to change the purchases which it applies to, if that is necessary for COVID-19 related reasons.

ADS explained...

Land and Buildings Transaction Tax (“LBTT”) is a tax applied to residential and commercial land and buildings transactions (including commercial purchases and commercial leases) where a chargeable interest is acquired.

Additional Dwelling Supplement (“ADS”) is an LBTT supplement on purchases of additional residential properties in Scotland (such as buy-to-let properties and second homes) of £40,000 or more.

ADS applies to most purchases of additional dwellings by individuals where the buyer owns more than one dwelling after purchasing a dwelling and they have not replaced their previous main residence. It also applies to most purchases of dwellings by non-natural persons (e.g. companies and partnerships).

ADS is charged at 4% of the purchase price and is paid as part of any LBTT due on the transaction.

The arrangements for ADS recognise that some people may purchase a new home before selling their previous main residence. If ADS has been paid, a taxpayer can make a claim for repayment if they dispose of the ownership of a previous main residence in the following 18 month period.

The coronavirus outbreak has had a much more significant impact on the housing market than could have been foreseen when the 18 month period was selected. The temporary closure of the application record by the Keeper of the Registers of Scotland on 25 March 2020 and the Scottish Government guidance published on 31 March 2020 (recommending that buyers delay moving to a new home while stay-at-home measures are in place) may have resulted in some transactions being pushed out of the 18 month period or in those transactions falling through completely.

More generally, the public health measures taken to control and limit the spread of the coronavirus outbreak have the effect of significantly restricting sellers’ ability to market and find a buyer for their previous main residence, making it more difficult to complete this process within the 18 month period.

What the new legislation changes

The Bill makes provision to assist taxpayers whose ability to reclaim ADS has been most directly affected by the coronavirus outbreak. It increases the 18 month period by nine months, with the result that these taxpayers have 27 months to dispose of their previous main residence and still be eligible for a repayment of the ADS.

The provisions apply to taxpayers who paid ADS in relation to a transaction with an effective date prior to 25 March 2020, but had not yet sold their previous main residence and were still within their 18 month period on that date (i.e. the effective date was between 24 September 2018 and 24 March 2020). This is because these taxpayers will not, in general, have been able to take into account the impact of the coronavirus outbreak on the housing market when paying ADS.

The draft legislation also gives the Scottish Government power to extend the 27 month period further, or to change the purchases which it applies to, if that is necessary for COVID-19 related reasons. 

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