Business rates anomaly could be costing Scottish tax payers millions

A tax loophole has come to light in Scotland that looks like taxpayers could be subsidising Airbnb property owners by millions of pounds.

Research published by the global short stay rental portal suggests that hosts in the Scottish capital made £78m from letting out their properties last year. This figure was seized upon by the Edinburgh Evening News which launched its own investigation.

Thanks to a canny piece of tax planning, the EEN is claiming many are paying nothing in council tax for basic services, such as bin collections, by declaring their short term lets as a business. The Scottish media is up in arms about the dodge and say the majority – more than 1000 property owners – benefit by up to £2.6m.

How? Under current Scottish Government rules, any short-term let which operates for more than 140 days a year does not have to pay council tax and instead becomes liable for business rates. However, small businesses with a rateable value of £15,000 or less are given total relief from business rates.

Small business rates relief is a concession intended to support small, independent traders but is being applied under regulations to short-term let properties – according to an investigation. The money lost by the City from the business rates’ exemption is repaid to the Council by the Scottish Government, which means Scottish taxpayers eventually foot the bill.

This means the vast majority of short-term lets in the city which declare themselves as businesses pay no tax to the council either way.

Both Airbnb and the Scottish Government are not accepting the £2.6m figure calling it “pure speculation”.  Local Government, Housing and Planning Minister Kevin Stewart said: “While short-term lets can have a positive impact and help boost the tourism across all areas of Scotland, we know that they can also create challenges. That’s why we want to ensure short-term lets are regulated appropriately. He added:  “We do not recognise the figures stated.”

If the practice and figures quoted are replicated in other Scottish towns and cities where Airbnb lets operate then the overall tax loss would be far higher.