When you buy a second home, buy-to-let property, or any additional residential property in Scotland over £40,000, you'll pay an 8% Additional Dwelling Supplement on top of the standard Land and Buildings Transaction Tax (LBTT). This means a £350,000 second property will cost you £36,350 in upfront taxes.
This article explains second home tax in Scotland for 2025/26: the LBTT and ADS you'll pay when buying, income tax on rental earnings, capital gains tax when selling, and when you can reclaim the ADS.
What is the Additional Dwelling Supplement (ADS)?
The Additional Dwelling Supplement was introduced in April 2016 and applies to all transactions involving the purchase of an additional residential dwelling over £40,000. The Scottish Government introduced ADS following the UK Government's decision to introduce a stamp duty supplement on additional residential properties, to maintain a level playing field and protect opportunities for first-time buyers.
The ADS is triggered when you own more than one residential property at the end of the transaction day whether you're an individual, company, or trust. This includes:
- Holiday homes and second residences
- Buy-to-let investment properties
- Replacement main residences purchased before selling your previous home
- Properties owned anywhere in the world (not just in Scotland or the UK)
The rate increased from 6% to 8% for all contracts entered into on or after 5 December 2024.
LBTT & ADS rates for second properties in Scotland
The table below shows both the standard LBTT rate and the combined rate when the Additional Dwelling Supplement is applied:
Purchase Price Band | Standard LBTT Rate |
|---|---|
Up to £145,000 | 0% |
£145,001 to £250,000 | 2% |
£250,001 to £325,000 | 5% |
£325,001 to £750,000 | 10% |
Over £750,000 | 12% |
Plus: Additional Dwelling Supplement of 8% on your entire purchase price (properties over £40,000). Unlike LBTT which is calculated progressively through the bands above, the 8% ADS is a simple calculation on your full purchase price.
Example: Buying a £350,000 second home in Scotland
Purchase Price Band | Calculation | LBTT |
|---|---|---|
Up to £145,000 | £145,000 × 0% | £0 |
£145,001 to £250,000 | £105,000 × 2% | £2,100 |
£250,001 to £325,000 | £75,000 ×5% | £3,750 |
£325,001 to £350,000 | £25,000 ×10% | £2,500 |
LBTT Total | £8,350 |
The 8% Additional Dwelling Supplement applies to your entire purchase price: £350,000 × 8% = £28,000.
Your total tax bill is £36,350, made up of £8,350 LBTT and £28,000 ADS. This works out to an effective rate of 10.4%.
Can you reclaim the ADS?
Yes, if you sell your previous main residence within 36 months of purchasing a replacement main residence that triggered ADS, you can reclaim the full supplement from Revenue Scotland. The repayment claim must be submitted within 12 months of the sale of the previous property.
Other ADS exemptions:
- Inherited properties do not automatically trigger ADS unless you buy additional homes later
- Uninhabitable properties may qualify for ADS relief if they meet specific conditions about the property's condition and intended use at the time of purchase
- Separated couples may qualify for relief if a court order requires them to retain an interest in the former main residence
Income Tax on Rental Income
If you rent out a second property, rental earnings are taxed as income under Scotland’s Income Tax bands for 2024 to 2025:
Tax Bands | Income Range | Tax Rate |
|---|---|---|
Starter Rate | £12,571 to £14,876 | 19% |
Scottish Basic Rate | £14,877 to £26,561 | 20% |
Intermediate Rate | £26,562 to £43,662 | 21% |
Higher Rate | £43,663 to £75,000 | 42% |
Advanced Rate | £75,001 to £125,140 | 45% |
Top Rate | Over £125,140 | 48% |
However, landlords can reduce taxable income by deducting allowable expenses like:
- Mortgage Interest (Limited Relief)
- Letting Agent Fees
- Maintenance and Repair Costs
Capital Gains Tax on Selling a Second Property
When you sell a second residential property in Scotland, Capital Gains Tax applies on the profit at the same UK-wide rates: 18% for basic-rate taxpayers and 24% for higher and additional-rate taxpayers from 30 October 2024 onwards. Scottish income tax rates determine your income tax band, but CGT rates are set by HMRC and apply uniformly across the UK.
It must be noted that the annual exempt amount for CGT in 2025/26 is £3,000, meaning only gains above this threshold are taxed.
Conclusion
Purchasing a second property in Scotland now comes with higher ADS charges, Income Tax on rental earnings, and CGT on property sales. The tax implications can significantly impact profitability, so careful planning is essential.
Seeking expert tax advice can help you navigate these obligations efficiently and optimise your investment strategy. UK Property Accountants is here to help simplify your property accounting and tax obligations no matter where you are investing in the UK.
FAQs
When six or more separate dwellings are purchased in a single transaction, they're treated as non-residential for LBTT purposes and the ADS typically doesn't apply. This is relevant for portfolio purchases and bulk buy-to-let investments.
If you are buying jointly with your partner (married, in a civil partnership, or cohabiting) and they already own a residential property, ADS will apply to the purchase even if you personally do not own another home. This is because the ADS rules treat married couples, civil partners, and cohabitants (plus their children under 16) as one “economic unit.” Ownership by any member of that unit means the household is treated as already owning a qualifying dwelling, and ADS will apply to any additional residential purchase in Scotland.
No. The ADS refund only applies when you're replacing your main residence. If you sell one buy-to-let property and buy another, you cannot reclaim the ADS even if you only ever own one investment property at a time.
You cannot claim an ADS refund. The 36-month deadline is strict, and Revenue Scotland cannot make exceptions for delayed sales or market conditions. You'll need to keep the ADS payment.
- Could the Autumn Budget 2026 Bring Down the UK Mansion Tax Threshold to £1.5m? - 25 September 2026
- The Bank of England Interest Rate Stays at 3.75%. But Here’s the Catch - 18 September 2026
- The North Is Now the Fastest UK Rent Growth Region. Here’s What That Does to Rental Yields - 17 September 2026
