Scotland’s historic charm and world‑leading universities have long attracted students to its cities. With many US students choosing to study at renowned institutions such as the University of St Andrews and the University of Edinburgh, many parents consider purchasing a flat for their child’s time in Scotland.
Buying a property can provide stability and long‑term value, but there are important Scottish nuances to consider. Choosing the right ownership and funding structure can help manage Scottish tax consequences, and ensure the purchase of the property fits within your wider family wealth planning.
Land and Buildings Transaction Tax and the Additional Dwelling Supplement
Land and Buildings Transaction Tax (LBTT) is a tax payable on the acquisition of property in Scotland. It is calculated, broadly, on the price paid. There are particular tax rates which apply to the purchase of residential property.
In addition to the ordinary LBTT charge, certain purchases of dwellings are subject to an additional 8% LBTT charge (the additional dwelling supplement or “ADS”).
Parents who purchase a property in Scotland, for their child to live in while they are at university, will likely be due to pay the ADS if they buy the property in their own name(s). The ADS applies when the purchaser (or their spouse, civil partner or cohabitant) already owns a property anywhere in the world, including in the US.
The ADS is payable to Revenue Scotland, in addition to the standard LBTT amount, within 30 days of the purchase.
Because of the high tax rate, the ADS can be a material upfront cost on the purchase of a property in Scotland. For example, on a purchase price of £300,000, the normal LBTT would be £4,600. The ADS, if applicable, would be an extra £24,000.
Should I gift cash to my child to purchase a house?
The most straightforward planning option is for parents to gift cash to their child and for the child to then purchase the property in their own name. Assuming that the child does not already own property in their own name, the ADS would likely not apply on that purchase. However, we understand that parents often want to avoid gifting large sums of cash or valuable assets to their children.
When parents provide funds as an outright gift to their child to purchase a property, the asset then belongs entirely to the child. Full legal control sits with them, meaning they have complete authority over how the property is used, financed, or disposed of in the future. This loss of control can introduce risks, because a property owned outright by a young adult may become vulnerable to future changes in their personal circumstances - such as relationship issues or financial difficulties.
As a result, parents often explore alternative ownership structures, such as trust arrangements. These arrangements can mitigate the ADS due, permit the child to live in the property while they are in Scotland, and protect the value of the asset.
Using a trust to purchase a home for a child at university
Using a trust structure can be an effective way for parents to support a child studying in Scotland while supporting long‑term family succession goals. A trust allows parents to safeguard the property and manage how it is used, without transferring ownership outright to a young adult.
With bespoke drafting, a trust can give a child or young adult a right to occupy a property which is owned by the trustees, with the result that the ADS position is assessed on the beneficiary (i.e. the child), rather than the trustees. If the child does not own another property, the ADS will likely not be due on the purchase by the trustees.
The advantages of using a trust can, therefore, be two-fold: (1) with careful planning, the ADS may not be due, and (2) the property is owned by the trustees, who can manage the property and protect its value. If the property was sold in the future, the sale proceeds would be due to the trustees, not the child. A trust structure ring-fences the value of the property, protecting it for the future.
Trust arrangements can be tailored to suit family needs and can be drafted to give different types of flexibility. The overall structure and how the trust is funded can also be adapted to take into account, for example, UK inheritance tax considerations, particularly where the parents have made other gifts in the past to family or friends.
Any ADS and asset protection advantages of using a trust should be balanced against wider tax considerations. It is important to also consider the future impact, if any, on the trust’s beneficiaries, including how such a trust structure would be viewed in the relevant US jurisdictions, and whether a Scottish or US form of trust should be used.
The importance of professional advice
The rules around Scottish property taxes and cross‑border implications are complex, and missteps can create unexpected liabilities. Early advice is essential when considering a Scottish property purchase, to ensure that the ownership structure, tax position and funding arrangements are fully aligned with your overall estate plan.
At Brodies, we bring together specialist tax, estate planning and property advisers who regularly support international families purchasing second homes in Scotland. We frequently work in close collaboration with clients’ existing advisers overseas to ensure the Scottish aspects of the purchase - whether relating to ADS, trust structuring, or longer‑term succession planning - align with the wider arrangements already in place.
For more information, get in touch with our wills and estate planning lawyers or our specialist tax lawyers.
