Legislative changes to Additional Dwelling Supplement (ADS) from 1 April 2024

Published: April 8, 2024

Effective on and after 1 April 2024, there are a number of changes in the way Additional Dwelling Supplement (ADS) will apply for transactions. In this blog post we look at some of the key updates.

Increase in the timeline for replacing a main residence

The most notable and in my opinion a welcome change is the increase in the timeline for replacing a main residence, which will now increase from 18 months to 36 months from the effective date. When purchasing a main residence prior to selling an existing residence, the buyer incurs ADS chargeable at the current rate of 6% of the purchase price. From 1 April, the purchaser will now have 36 months from the effective date of the purchase in which to complete the sale of their existing main residence in order to reclaim ADS chargeable on the purchase. The effective date is generally the date when a transaction completes (the date of entry). 

Unfortunately, this change is not retrospective and clients who completed a purchase transaction prior to 1 April will have the current 18 months from the effective date in which to complete the sale of their existing dwelling. 

Small shares of ownership in a property

Another change worth pointing out is in relation to the ownership of small shares. Previously ADS was chargeable on the total value of the dwelling for the purpose of ADS. From 1 April, the share of ownership will be taken into account and if the value of a share is less than £40,000, ADS will not be chargeable.

Inherited dwellings

Should a buyer inherit a dwelling during the period between entering into a purchase contract for the purchase of a new main residence and the completion date of that purchase, the inherited dwelling will not be counted for the purposes of ADS.  However, it should be noted that the inherited dwelling may be taken into account for future transactions.

Divorce or separation

In cases of divorce and separation, an exception to ADS will now apply if certain conditions are met. These are:

(i) Where two dwellings are owned at the end of the effective date and the first dwelling has at any time been a main residence, owned jointly by a buyer along with a spouse, civil partner, former spouse or former civil partner.

(ii) The first dwelling remains the main residence of the buyer’s spouse, civil partner, former spouse or former civil partner.

(iii) The ownership of the first dwelling has been retained due to either a court order or formal agreement, both in connection with the dissolution or annulment of separation or divorce. Should all the above criteria be met, a former spouse or civil partner can purchase a main residence without incurring ADS on that purchase.

If you have any questions about these changes, please contact Associate Sarah Adams in our Residential Property team who will be happy to assist.