Tourism is booming. What’s changed for short-term let owners?

If you own a short-term property let, you could be impacted by the newly implemented short-term let licensing scheme. Ryan White covers all aspects of the scheme, from how to apply to the tax consequences for those without a license.

Scotland welcomed over 3 million tourists last year. As many marvel at our castles, museums, mountains, and lochs, the tourism sector continues to boom post-pandemic. It's no surprise then that the short-term let industry has skyrocketed over the past few years. AirBnb and similar platforms have made the sector more accessible, helping many businesses thrive.

However, that growth did not come without a cost, and as the industry expanded into cities it was almost inevitable that unintended consequences would arise. This led to the Scottish Government introducing legislation in January 2022 to better regulate the industry and the implementation of a short-term rentals scheme. As a business owner, it’s important to know what’s changing and your key tax considerations.

What is the short-term lets licensing scheme?

The Short-Term Lets Licensing scheme is a legal obligation, fully effective from October 1st, 2023, requiring any person offering short-term lets to hold a license. All short-term let accommodation requires a license unless it is exempted or excluded from the legislation. If you are unsure if you need a short-term lets license you can use the tool here.

Anyone who takes bookings or receives guests after this date will be doing so illegally and could receive a fine of up to £2,500 alongside a 12-month ban from applying for a license.

The Scottish Government intervened in the market to ensure that short-term lets are safe, considerate towards neighbours and to allow local authorities to understand what is happening in their area and handle complaints effectively. Local authorities have up to 12 months to process applications for existing hosts and 9 months for new hosts. All short-term lets need to be licensed by 1 January 2025.

How do you apply for a license?

You apply for the license through your local council’s website or contact them directly.

You’ll need to meet certain conditions to be considered for a short-term let license. These address basic health and safety measures such as electrical safety checks, gas safety certificates, and meeting the repairing safety standard for all flats and houses.

You’ll also need to check what type of accommodation you will need a license for. It’s also worth noting that if your accommodation is in a short-term let control area, you may need to apply for planning permission before applying for a license.

More information on how to apply can be found here.

What if your license has been refused?

Simply put, if your license has been refused, you will no longer be able to use your property to offer short-term lets. As mentioned earlier, operating without a license will result in penalties.
Those who don’t meet the criteria and have been refused a license might face a decision about selling up if they’re not personally living in the property.

What are the tax implications?

Taxation of income

As many business owners who operate in the short-term rental space will know, any income generated could be subject to tax. This should always be reported to HMRC, and tax must be paid where necessary. The exact tax, or taxes, applicable will depend on which business structure you operate under, whether that be as a sole trader or a corporate entity.

Determining the most tax-efficient structure for your short-term letting business is important. We can ensure that you can maximise the deduction of expenses associated with running your short-term let from your income, therefore reducing your tax bill. This could include mortgage interest, utility bills, cleaning costs, and any insurance you take out relating to the property. To ensure you benefit from this, we always recommend you keep all receipts and records of your expenses, and we can advise on a suitable system for record-keeping tailored to your needs.

Capital Gains tax on sale

If you’ve been denied a short-term let license and decide to sell your property, you will need to consider your potential Capital Gains tax (CGT) liability. This is the tax you will pay on any gains that you make from the sale of your property.

If your short-term let is considered residential property (which isn’t your home) or a furnished holiday let, you could be liable to pay a CGT rate of either 18 or 28 percent. For corporates, this could be charged at 19 to 25 percent on your total taxable gain.

The CGT calculation is not always straightforward and reliefs such as Principal Private Residence (PPR) relief (individuals only) may apply if the property you’re selling has been your main residence during the time you’ve owned it. This is a complex area of taxation and you should seek advice from an advisor around any reliefs you may be entitled to.

As an individual tax payer, you’ll likely be required to file an in-year CGT return and pay any tax due, within 60 days of the sale of the property. Whether you are a company or an individual landlord, you will need to report the disposal on your annual tax return and account for any tax already paid. Consulting an advisor and planning ahead will ensure there are no nasty surprises.

Because selling your short-term let can come with tax complications which can get very technical, very quickly, we’d always recommend that you talk to your tax advisors.

Advising you on your next steps

As with any new legislation, knowing your responsibilities and planning ahead is essential.
When it comes to considering the tax implications associated with your short-term let, working with an advisor can help to ensure you remain both compliant and efficient going forward.
We work alongside business owners and individuals who own short-term lets, supporting them with their tax, accounting, and advisory needs. Get in touch to see how they can support you with the ever-changing legislative landscape.

Get in touch today.