In December 2024, the Scottish Government announced a significant change to the Additional Dwelling Supplement (ADS), increasing it from 6% to 8%. This adjustment marks a notable shift in Scotland’s property market landscape, affecting buyers of additional residential properties, such as second homes or buy-to-let investments. The change is part of a broader strategy to address housing availability and affordability while navigating the complexities of the property market.

Here, we explore the implications of this increase, its rationale, and what it means for potential buyers, property investors, and the housing market in Scotland.

What is the Additional Dwelling Supplement (ADS)?

The ADS is a surcharge applied to the Land and Buildings Transaction Tax (LBTT) for individuals purchasing additional residential properties. Introduced in 2016, the ADS aimed to:

  1. Deter speculative property purchases.
  2. Increase revenue to fund affordable housing initiatives.
  3. Create a fairer housing market by discouraging the accumulation of properties that could otherwise serve as primary residences.

Previously set at 3%, the ADS was increased to 4% in 2019 and to 6% in 2020. The latest hike to 8%, effective 1 January 2025, continues this trend.

Rationale behind the increase to 8%

The Scottish Government justifies the increase to 8% on several grounds:

  • Addressing housing demand: With demand for housing outstripping supply in many areas, the ADS hike aims to disincentivise buy-to-let and second-home purchases, freeing up properties for first-time buyers and families seeking primary residences.
  • Revenue generation: The higher ADS rate is expected to bolster government revenue, funding affordable housing projects and infrastructure improvements.
  • Market stability: By curbing speculative purchases, the government seeks to mitigate property price inflation and stabilise the marke

Implications of the 8% ADS

  1. Financial impact on buyers

The most immediate consequence of the 8% ADS is the increased cost for those purchasing additional properties. For example, on a £200,000 property:

  • At 6%, the ADS was £12,000.
  • At 8%, it rises to £16,000.

This steep increase could lead prospective buyers to reconsider their investments or adjust their budgets significantly.

  1. Impact on the buy-to-let market

The buy-to-let market is likely to face pressure as higher transaction costs deter new entrants and potentially squeeze profit margins for existing landlords. This could reduce the supply of rental properties in certain areas, further complicating the housing crisis.

  1. Potential benefits for first-time buyers

First-time buyers, who are exempt from the ADS, may benefit indirectly. With fewer investors competing for properties, there may be increased availability and less upward pressure on prices, particularly in areas with high demand.

  1. Regional variations

The impact of the ADS increase will vary across Scotland. Urban areas like Edinburgh and Glasgow, where property prices are higher, will see more pronounced effects than rural or less densely populated regions.

Key exemptions and reliefs

While the 8% rate applies broadly, there are important exemptions and reliefs that buyers should be aware of:

  • Replacing a main residence: Buyers replacing their primary residence are exempt from ADS, provided they meet certain criteria.
  • Refunds: If buyers sell their previous main residence within 36 months of purchasing an additional property, they can apply for an ADS refund.
  • Certain companies and trusts: Specific types of corporate entities and trusts may be eligible for reduced or exempt rates under certain conditions.

These provisions aim to ensure the ADS is applied equitably and does not unfairly penalise buyers with genuine needs for additional properties.

Navigating the 8% ADS: advice for buyers

  1. Budget carefully

Buyers of additional properties must factor the increased ADS into their budgets. Seeking advice from tax professionals can help clarify the full cost of a purchase.

  1. Consider timing

If possible, buyers may benefit from aligning purchases with sales of existing main residences to avoid incurring the surcharge or to qualify for a refund.

  1. Explore relief options

Understanding the exemptions and reliefs available can reduce the financial burden. Buyers should consult with a solicitor or tax adviser for tailored advice.

Broader implications for Scotland’s property market

The 8% ADS increase reflects the Scottish Government’s ongoing effort to balance competing priorities in the housing market: ensuring affordability, meeting demand, and maintaining a fair playing field for buyers. While it introduces higher costs for certain transactions, the policy’s long-term success will depend on its effectiveness in improving housing availability without unduly disrupting investment and rental markets.

For property investors and prospective buyers, the change underscores the importance of careful planning and understanding the evolving regulatory environment. As Scotland continues to address its housing challenges, measures like the ADS will remain pivotal in shaping the market’s future.

For more advice or assistance please contact Calum from Bonham & Brook.

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