With a recent increase in the ADS increasing the cost of second home and buy-to-let properties in Scotland, we compare property taxes across the UK to find out where it’s cheapest to buy a second home.
The increase in the Additional Dwelling Supplement (ADS) from 3 to 4 per cent has made it more expensive to buy a second home or buy-to-let property in Scotland. But will you pay more overall in property taxes to buy an additional property in Scotland compared to England or Wales?
We look at the different taxes that apply to second home and rental purchases across the UK.
Scotland (Land and Buildings Transaction Tax)
In Scotland, Land and Buildings Transaction Tax (LBTT) is charged on all properties with a purchase price of £145,000 or above.
The LBTT rate is calculated as a percentage of the purchase price above the £145,000 threshold. For example, if you bought a property for £185,000, you’d pay 2 per cent LBTT on £40,000. The percentage you pay increases as the purchase price gets higher, up to a maximum of 12 per cent for properties over £750,000.
| Purchase Price | LBTT rate | |
|---|---|---|
Up to £145,000 | 0% | |
Above £145,000 to £250,000 | 2% | |
Above £250,000 to £325,000 | 5% | |
Above £325,000 to £750,000 | 10% | |
Above £750,000 | 12% |
If you’re buying a second home or buy-to-let property, the LBTT Additional Dwelling Supplement (ADS) will apply. This is now charged at 4 per cent of the total purchase price of the dwelling for properties costing £40,000 or more.
Revenue Scotland has an online calculator to help you work out how much LBTT you’d pay on a particular property, including any ADS.
England and Northern Ireland (Stamp Duty Land Tax)
In England and Northern Ireland, Stamp Duty Land Tax (SDLT) applies to purchases of homes valued at over £125,000. The amount you’ll pay is calculated on the proportion of the purchase price falling within each SDLT band, from 2 per cent of the property price up to 12 per cent.
If you’re buying a property as a second home or buy-to-let investment, then you’ll pay an additional 3 per cent tax on top of the SDLT due for properties costing more than £40,000. For example, if you bought a property for £80,000 as your main residence, you wouldn’t pay SDLT. If it was a second property, then you would pay £2,400 (3 per cent of the total purchase price).
HMRC’s Stamp Duty Land Tax calculator can be used to work out how much tax you’d pay when buying an additional property.
Wales (Land Transaction Tax)
The Land Transaction Tax (LTT) came into effect in Wales from 1 April 2018, replacing Stamp Duty Land Tax. Like SDLT, The LTT is a percentage of the property’s sale price and is calculated on the proportion of the purchase price falling within each band.
For residential properties, the main differences are:
- LTT applies to homes with a purchase price of £180,000 or more.
- Although the highest rate of both taxes is 12 per cent, the percentage charged across lower bands varies.
If you’re buying a property as a second home or buy-to-let investment, then you’ll pay an additional 3 per cent on top of the LTT rates for properties costing more than £40,000.
The Welsh Revenue Authority has a Land Transaction Tax calculator that you can use to work out how much tax you’d pay on a purchase.
Which tax system is cheapest for buy-to-let?
This will depend on the purchase price of your property. Due to the higher rate of additional tax and lower band thresholds, you will almost always pay more in Scotland than in other parts of the UK.
Comparing England (and Northern Ireland) and Wales is a little more complex. You’ll typically pay less in tax in Wales for lower-value properties, but more once the property value hits a certain threshold (currently just over £400,000).
If you’re buying a leasehold property in any part of the UK, different rules apply. Find out more about how Stamp Duty applies to buy-to-let purchases in this article.