David Alexander: Reconsider tax breaks for short-term lets

David Alexander says it seems 'blatantly unfair' that short-term landlords can avoid paying rates. Picture: Ian Rutherford

While strongly disagreeing, neither is the system perfect, which puts me broadly in harmony with the call made by Mr Wightman last month to end the tax loophole surrounding short-term lettings in Edinburgh and other parts of Scotland popular with tourists.

• READ MORE: Markets and economy news

Properties available to rent for 140 days or more are liable for business (or non-domestic) rates rather than council tax. However, according to Mr Wightman, 83 per cent of short-term lets in Edinburgh declared to the authorities have a rateable value of less than £15,000, below which rates are exempt under the Small Business Bonus Scheme.

Effectively, therefore, these properties do not pay a local tax. He believes an additional £10.6 million in revenues would be generated if non-domestic rates were charged on all short-term lets of 140 days or more per year.

Perhaps this has helped incentivise a relatively small but still significant number of landlords in Edinburgh’s conventional letting sector to switch to short-term tenancies aimed mainly at holidaymakers and “weekenders”. Even with the additional cost of servicing and maintenance, profits from short-term lets can be substantially greater than those gained from letting to long-term tenants.

This, of course, has led to a reduction in the number of conventional rental properties, the consequence being higher rents for a diminished quantity of product and adversely affecting everyone coming to work in the city and seeking a place to rent.

It does seem blatantly unfair that landlords of short-term accommodation should be able to avoid paying a local tax (ie rates) when those who provide long-term accommodation are being hammered by a new aggressive policy on personal taxation related to buy-to-let by the UK government at Westminster.

Clearly, greater equilibrium in taxation between short- and long-term lettings would almost certainly lead to some “leisure” accommodation being returned to the stock of long-term rental property – which if not exactly leading to a reduction in rental costs would probably have a dampening effect on future increases.

Similar comparisons might also be made with purpose-built student accommodation, which is zero-rated. Sandra White, MSP for North Kelvin in Glasgow, is another Holyrood politician with whom I don’t usually agree but, even allowing for perhaps a bit of exaggeration, her comment made earlier this year that “every single piece of spare land in the West End and the city centre is being taken up by student accommodation” will find sympathy in many quarters.

I do accept that purpose-built student developments have their place and that their availability has provided good-quality accommodation for youngsters who in the past might have gone into sub-standard lodgings. But why a tax break for developers which, by implication, ripples out to student clients from wealthier families?

As private tenants have increasingly become part of the “mix” in various residential neighbourhoods, the number of complaints from disgruntled owner-occupiers has also gone up. Some complaints are justified but often they are made by people who just don’t like sharing their communal space with tenants.

I doubt, however, if the same attitude applies to residents in Edinburgh city centre who find themselves living above, below or across the landing from a “leisure flat” whose short-term occupants are determined to “party” for every minute of their stay.

They, I’m sure, would be delighted to see the accommodation taken by a long-term tenant who spends the evening watching television, goes to bed at a reasonable hour and enjoys weekends without playing the stereo at full blast.

• David Alexander is managing director of DJ Alexander, letting and estate agents

Click here to ‘Like’ The Scotsman Business on Facebook