Scottish taxpayers footing £2.6m Airbnb tax bill in Edinburgh

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A Tax loophole means Airbnb and short-term let property owners are being publicly subsidised to the tune of at least £2.6 million in the Capital, the Evening News can reveal.

Research published by Airbnb suggests that hosts in Edinburgh made £78m from letting out their properties last year – but many are paying nothing for basic services, such as bin collections and pavement repairs, from which they and their tenants benefit.

John Mitchell has lived in Stevenlaw's Close off the Royal Mile since 1992.

John Mitchell has lived in Stevenlaw's Close off the Royal Mile since 1992.

READ MORE: 'Party flat' ban for Edinburgh Airbnb property owner

More than 1,000 property owners – the majority of those who declare their short-term lets to tax officials as a business – are paying nothing for local services with the bill instead being picked up by Scottish taxpayers.

That is a result of small business rates relief – a concession designed to support small, independent traders – being applied under current regulations to short-term let properties.

There is a suspicion that the tax being lost to the public purse may be much greater due to the sector being left to largely police itself.

John Mitchell.

John Mitchell.

If every Airbnb host renting out their entire property in the Capital qualified through the loophole, to take an extreme example, the potential liability to taxpayers for re-imbursed business rates would be more than £14m.

Letting agents and landlords have called the loophole “a bad joke” and called on the Scottish Government to take action.

The proliferation of short-term lets in the city also means many residents say they feel like they are “sponsoring” businesses run by people who don’t contribute to the Capital’s coffers. In the first of a three part in-depth Evening News investigation into the impact of the short-term let industry on Edinburgh beginning today, we can reveal:

- There are more than 11,000 active listings (listings with at least one review in the last year) on Airbnb in the Capital.
- More than 7,000 of these are entire properties, with another 4,000 rooms inside houses and flats.
- Only 1,700 properties are listed as short-term self-catering units on the business rates register.

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, with small businesses with a rateable value of £15,000 or under given total relief from business rates, it means the vast majority of short-term lets in the city which declare themselves as businesses pay no tax to the council whatsoever.

Further breaks are available for those with more than one short-term let property, with rules allowing holiday let owners to run up to 10 separate properties, each rated at less than £3,500 and still pay less in business rates than they would in council tax due to the 25 per cent discount for multiple business property owners.

Short term let operators are also not required to register with the council as landlords saving around £5,000, nor do they need a HMO licence, costing £600 per property.

The money lost by the council from the business rates exemption is repaid to the council by the Scottish Government, meaning Scottish taxpayers footing the bill.

Airbnb claimed hosts in Edinburgh made £78m in 2018 from letting out their properties. One landlord and letting agent, who manages a portfolio of 100 properties, mostly in Edinburgh, called the loophole a “bad joke”.

The businessman said: “On the one hand the authorities say they want to clamp down on unregulated short-term lets, because that remove stock from the housing market, causing shortages for families or long-term renters.

“Yet on the other hand the system is handing a conveyor belt of breaks and incentives to Airbnb operators. The council tax exemption is just one of the most shocking breaks. I know someone who just got £2,500 in backdated council tax refunds for their Airbnb property. It’s a bad joke.”

An Airbnb spokesman said: “This data is pure speculation and doesn’t reflect the reality of hosting in Edinburgh.

“The truth is that local hosts share their homes for an average of less than four nights a month – well below 140 nights a year – and guests on Airbnb account for less that 3 per cent of visitors to Scotland.

“We remind all hosts to follow the rules, pay VAT on every transaction and support plans for a tourist tax in Scotland.”

Housing Minister Kevin Stewart said:“We are committed to working with local authorities to give them the powers they need to balance the unique needs of their communities with wider economic and tourism interests.

“While short-term lets can have a positive impact and help boost the tourism economy across all areas of Scotland, we know that they can also create challenges. That’s why we want to ensure that short-term lets are regulated appropriately.

“We are grateful for the large number of responses we received to our recent consultation, which we will now carefully consider.

“We do not recognise the figures stated. The Scottish Government is dedicated to delivering a rates regime that is fair and sustainable. This is why we prioritise small businesses by providing a Small Business Bonus Scheme which is universally available.”

Old Town resident feels like 'unofficial factor' as last resident in tenement

For one Old Town resident, the proliferation of Airbnbs has seen the community he knew slowly disappear, leaving him alone to ‘sponsor’ someone elses business.

John Mitchell, who has lived in Stevenlaw’s Close off the Royal Mile since 1992, is the last owner-occupier in his tenement of four flats.

The area has changed drastically since then, with shops closing and the close-knit, working class community moving or dying out.

Mr Mitchell said: “We had this very substantive community that lived in the Old Town and many of the tenements were rented by the council or housing associations.

“A lot of elderly people had lived in there forever and when they died and people realised the commercial potential, that really destroyed the neighbourhood.

“When I moved in people had been here for 20 years. It meant the stair cleaning was never a problem, we took parcels in for each other.

“I don’t want to portray myself as some old fart that regrets the past, there have been a lot of really excellent changes but there has been a lack of monitoring and control over what was actually happening.

He added that he now feels like he is ‘sponsoring’ the business of his neighbours, due to being the only owner looking after the property.
Mr Mitchell said:“I’m the unofficial factor for this area because there isn’t anybody else, while the neighbours used to share it before. I don’t mind these things from time to time but I am actually sponsoring their business

“If this building fell down tomorrow the owners would find out if I wasn’t here by a bad review on Airbnb or from the Evening News.”

For Mr Mitchell, the Capital has changed, and not for the better.

He said: “I feel embattled and I feel that this is not really Edinburgh anymore. This is a Disneyfication of some haggis and tartan that has never existed in Edinburgh. It is hard, but it is not the tourists’ fault and I feel like the few of us left are exhibits in an exhibition.”