New LBTT exemption for couples' old homes addresses 'unfairness', expert says

If approved by the Scottish Government, an exemption from ADS will apply where a married or cohabiting couple is jointly buying a new home to replace a home which one, but not both, of the joint purchasers currently own. The current rules treat the cohabiting couple as a 'single economic unit', meaning that the ADS applies to the previous property as if it was a second home.

Property law expert Alan Cook of Pinsent Masons, the law firm behind Out-Law.com, said that under the current rules, relief from ADS was only available where both of the joint purchasers owned the home which was being replaced.

"The amendment means that relief from ADS will be available where the home being replaced is owned by just one of the spouses, civil partners or co-habitees who are together jointly buying the new home," he said.

"A number of cases had been highlighted where the existing rules were resulting in ADS being payable in circumstances where this did not seem fair. Representations were made to Revenue Scotland and the Scottish Government, which has accepted that the rules as they stand did not represent the policy intention and are therefore being adjusted," he said.

The change is due to come into force on 30 June 2017, subject to the approval of draft legislation by the Scottish Government. However, Cook said that despite the change, there remained "traps for the unwary within ADS in terms of whose ownerships of existing dwellings can potentially trigger ADS on the acquisition of a new dwelling by others".

The ADS came into force on 1 April 2016, one year after the LBTT replaced stamp duty land tax on residential and commercial land transactions in Scotland. The charge applies to the purchase of 'additional dwellings' including buy to let properties and second homes, unless the buyer is replacing their main residence.

Married couples, civil partners and cohabitants are treated as "one economic unit" for the purposes of the LBTT and the ADS. This is intended to address "the risk of properties being moved between individuals for the purposes of tax avoidance". However, the original drafting created an "unintended restriction" on the operation of the relief, in circumstances where only one member of the couple owned the previous property, according to an explanatory note published by the Scottish Government.

Under the ADS rules, the charge becomes payable at the point that the couple own two dwellings: that is, at the point when funds and ownership of the new property transfers. However, the supplement can be reclaimed from Revenue Scotland provided that the former residence is sold within 18 months.

The amendment will not be retrospective. Assuming the draft statutory instrument is approved in its current form, the amendment will apply to transactions where the acquisition occurs on or after 30 June 2017 and the contract was entered into on or after 20 May 2017.