A Tax That’s Holding Back the Rental Market?
Scottish landlords are once again raising their voices—this time in unison—calling for a moratorium on the Additional Dwelling Supplement (ADS).
This tax, which applies to anyone buying an additional residential property in Scotland, is being blamed for curbing investment in the private rental sector at a time when housing demand far exceeds supply.
With the Scottish rental market already facing severe shortages, especially in urban hubs such as Edinburgh, Glasgow, Dundee, and Aberdeen, many property professionals argue that the ADS, currently levied at 6%, is doing more harm than good.
In this article, we examine what ADS is, why landlords want it paused, how it’s affecting housing availability, and what a moratorium could mean for the wider Scottish housing landscape.
What is the Additional Dwelling Supplement (ADS)?
The Additional Dwelling Supplement (ADS) is a tax charged on the purchase of second or additional residential properties in Scotland. This includes buy-to-let investments, second homes, and holiday lets.
Introduced in 2016 as part of the Land and Buildings Transaction Tax (LBTT) regime, ADS was designed to curb speculative property investment and make room for first-time buyers.
At face value, this might seem fair. But critics argue the blanket tax is discouraging genuine buy-to-let investors and hampering the creation of badly needed rental accommodation.
When landlords are discouraged from purchasing properties, fewer homes are made available for let, worsening the housing supply crisis that is gripping Scotland.
Why Are Landlords Demanding a Moratorium on ADS?
The call for a moratorium on ADS is not arbitrary. Here are the key reasons driving landlords’ demands:
Supply Shortages Are Spiralling
Scotland’s rental market is now defined by demand that vastly outstrips supply.
Students, young professionals, and low-income families alike are struggling to find affordable, available housing. Letting agents report queues of applicants for each property, pushing rents higher and pricing out many would-be tenants.
Buy-to-let landlords say the ADS acts as a financial disincentive to purchase properties, especially as many are facing tighter profit margins from regulatory compliance costs, rising interest rates, and stricter energy efficiency standards.
Investment Has Slowed Down
Data from property industry bodies shows a sharp decline in new rental stock coming onto the market. Many smaller landlords are selling off their portfolios, often to owner-occupiers, leading to a net loss in available rental units.
This contraction in supply is in part attributed to the upfront cost of the ADS, which can run into thousands of pounds for even modest property purchases. A landlord buying a £200,000 flat would pay an additional £12,000 in ADS—on top of standard taxes and expenses.
It’s Affecting Rural and Urban Markets Alike
While cities are the focal points of rental demand, rural Scotland is also suffering. Local economies that depend on seasonal workers are struggling to provide accommodation.
Farmers and business owners in places like the Highlands and Borders report serious issues in recruiting staff due to the lack of local housing.
A moratorium on ADS could encourage the purchase of buy-to-let homes in under-served areas, thereby revitalising rural communities.
Unintended Consequences for Tenants
Ironically, the policy aimed at making housing more accessible has ended up making it harder for tenants to find places to live. With fewer rental properties available, competition for housing becomes fierce.
In some cases, landlords are opting for short-term lets instead, further reducing long-term rental stock.
A moratorium on ADS is seen as one way to ease this pressure and stimulate the availability of long-term lets.
What Would a Moratorium Mean?
A moratorium, in this context, means temporarily suspending the requirement to pay ADS on the purchase of additional properties. It is not a permanent repeal but a pause, likely ranging from 12 to 24 months, to evaluate the market impacts and reassess policy effectiveness.
Such a measure would serve as a temporary stimulus for the rental sector. Landlords could expand portfolios or re-enter the market without facing prohibitive upfront costs. This would likely lead to a short-term increase in housing stock and a slight cooling of rental inflation.
However, critics warn that a moratorium might also lead to an unintended rush of investor purchases, potentially inflating property prices in already-stressed areas. Supporters argue that any upward pressure on prices would be offset by the benefit of increased rental supply.
Political and Public Reactions
The Scottish Government has maintained that the ADS is a vital tool in discouraging speculative investment and preserving housing for first-time buyers.
However, with the current housing shortage making headlines across the country, pressure is mounting for Holyrood to revisit its stance.
Tenant advocacy groups are split. While they support any measure that could improve housing supply, they also fear that further incentivising landlords might lead to rent hikes unless stricter rent controls are introduced simultaneously.
Meanwhile, property and landlord associations, including those representing small-scale landlords, are urging policymakers to consider the data and act in the interests of the broader housing market.
The message is simple: without incentivising new rental supply, tenants will suffer the consequences.
The Economic Case for a Moratorium
From a fiscal perspective, suspending ADS would mean a temporary dip in tax revenue. However, this may be offset by the wider economic gains of a more mobile and better-housed population.
More rental homes mean more people can move for work, study, or family reasons. It also means fewer people trapped in unsuitable or overcrowded accommodation.
Landlords argue that the economic uplift from increased housing activity could compensate for the short-term loss in ADS revenue.
Furthermore, a healthier rental market could reduce reliance on emergency housing provision, temporary accommodation, and public assistance—sectors that currently cost local authorities millions.
The Case for Long-Term Reform
While landlords are calling for a moratorium, many also want broader reform. Suggestions include:
- Tiered ADS rates for professional landlords or institutional investors.
- Exemptions for properties brought back into use (e.g. empty homes).
- Regional flexibility based on supply/demand pressures.
- Full abolition of ADS for accredited or regulated landlords.
The one-size-fits-all tax regime currently in place makes no distinction between speculative second-home buyers and landlords providing housing for long-term tenants. Reform advocates argue that such distinctions are essential if Scotland is to meet its housing targets.
Where Do We Go from Here?
As Scotland faces a critical juncture in housing policy, the government must balance fairness, affordability, and supply. The case for a temporary ADS moratorium is gaining traction, not just among landlords but also economists, housing analysts, and local authorities.
The real question is whether Holyrood is willing to respond with agility or stay fixed on policies designed for an entirely different market reality. With housing shortages deepening and public frustration mounting, the time for a bold response may have arrived.
FAQs: Scottish ADS Moratorium for Landlords
What is the current rate of the Additional Dwelling Supplement in Scotland?
The current rate of ADS is 6% of the total purchase price of an additional residential property.
Who has to pay ADS?
Anyone buying a second home, buy-to-let property, or any residential property not intended as their main home must pay ADS in Scotland.
What is a moratorium in this context?
A moratorium would be a temporary suspension of ADS requirements, likely to encourage landlord investment and increase rental supply.
Why are landlords calling for this moratorium now?
Because Scotland is experiencing a severe rental housing shortage. Landlords argue that the ADS is acting as a barrier to new investment and reducing the number of homes available for rent.
Would a moratorium lower rent prices?
Potentially, yes. Increasing rental supply may help reduce competitive bidding for properties, which in turn could stabilise or reduce rental inflation in some areas.
Could this increase house prices?
There is a risk that suspending ADS could lead to a rise in house prices due to increased competition among buyers, but this might be offset by the benefits of greater rental availability.
Will this benefit large corporate landlords more than small landlords?
Not necessarily. Many small landlords are expected to benefit more from a moratorium, as they are more sensitive to upfront costs like ADS.
Is the Scottish Government considering this request?
As of now, there is no formal commitment from the Scottish Government to implement a moratorium, though they have acknowledged concerns from the property sector.
What alternatives are being suggested to the current ADS model?
Suggestions include region-specific rates, exemptions for accredited landlords, or waivers for homes brought back into use from long-term vacancy.
What could happen if no action is taken?
If ADS remains in place without reform, Scotland may see a continued decline in rental housing stock, further pushing up rents and exacerbating the housing crisis.
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