Council tax for second and empty homes, and thresholds for non-domestic rates: consultation analysis

4: Letting thresholds for non-domestic rates

The owners, tenants or occupiers of self-catering accommodation (who may be businesses, the public or the third sectors) may be liable for either Council Tax or non-domestic rates. This includes owners of second homes who use them for self-catering accommodation. The current threshold for defining premises as self-catering holiday accommodation liable for non-domestic rates is it must be available to let for 140 days or more and actually let for 70 days or more in the same financial year.

Question 13 – Do you think that the letting thresholds for self-catering accommodation for non-domestic rates should be changed?

Responses to Question 13 are set out in Table 14 below.

Table 14: Responses to Question 13 by respondent type

Organisations	Yes	No	Don't know	Total
Campaign group or union	4	1	-	5
Community or Development Trust	5	-	-	5
Housing	1	-	1	2
Local authority	22	1	3	26
Public body or agency	3	-	1	4
Representative or professional body	3	3	1	7
Tourism, including accommodation provider	1	9	-	10
Other	-	-	-	0
Total organisations	39	14	6	59
% of organisations	66%	24%	10%
Individuals	449	198	208	855
% of individuals	53%	23%	24%
All respondents	488	212	214	914
% of all respondents	53%	23%	23%

Percentages may not sum to 100% due to rounding

A small majority of respondents – 53% of those answering the question – thought that the letting thresholds for self-catering accommodation for non-domestic rates should be changed. The remaining respondents were evenly divided between those who did not think they should be changed and those who did not know.

Organisations were more likely to think that the threshold should be changed, with 66% thinking it should and 24% that it should not. Most Local authorities supported a change, but most Tourism organisations did not.

The table below compares views between those who reported that they owned one or more second homes, long-term empty homes or short-term let/self-catering accommodation with those who did not.

Table 15: Views on letting thresholds for non-domestic rates by property type owned

	Yes	No	Don't know	Total
Owns a second home, long-term empty home or short-term let/self-catering accommodation	82	126	114	322
% of above	25%	39%	35%
Does not own a second home, long-term empty home or short-term let/self-catering accommodation	406	87	100	593
% of above	68%	15%	17%
All respondents	488	212	214	914
% of all respondents	53%	23%	23%

Compared to 53% of all respondents, only 25% of those who own a second home, long-term empty home or short-term let/self-catering accommodation thought that the letting thresholds for self-catering accommodation for non-domestic rates should be changed, while 39% thought it should not and 35% did not know.

Please give reasons for your answer

Around 555 respondents provided a comment at Question 13.

Reasons that letting thresholds should be changed

While the majority of respondents who favoured changing the current thresholds argued that they should be increased, a minority called for thresholds to be reduced.

Thresholds should increase

Relieving housing shortages

The reason cited most frequently was that self-catering accommodation exacerbates housing shortages, with associated negative impacts on local communities and economies.

“Self-catering accommodations are businesses which have a negative impact on the local economy, exacerbating the housing crisis and local housing shortages…” Individual

In terms of specific impacts on housing supply, issues referenced included:

• increased house prices, sometimes making property unaffordable to local residents
• reduced availability or increased cost of accommodation in the long-term private rented sector
• harm to communities – particularly in rural areas – where some properties are unoccupied for much of the year

Increasing payment of local taxes

Raising the threshold at which self-catering accommodation becomes liable for non-domestic rates was seen as beneficial because it will increase the number of properties liable for payment of Council Tax, thereby contributing more to support the local economy. It was also suggested that there is a risk that leaving current thresholds in place may undermine implementation of a Council Tax premium on second homes.

Local authorities were among respondents who noted the possibility, as set out in the consultation paper, that non-domestic rates relief available via the Small Business Bonus Scheme (SBBS) can mean that owners of properties let as self-catering accommodation pay no local taxes. A system that allows some property owners to avoid local taxes was seen as unfair to other Council Tax payers, including owners of second homes.

There was also a view that self-catering accommodation should be treated either as a business or not and, if the former, it should be available for let for the majority of the year, or for the whole year. Otherwise it should be treated as a domestic residence and liable to pay Council Tax.

Encouraging longer occupation

It was argued that a higher threshold will encourage higher occupancy rates, particularly outside the peak tourist season, bringing benefits to the local economy and avoiding property standing empty. Related points raised included that:

• current thresholds allow property to qualify for the non-domestic rates regime (and hence SBBS relief) while unoccupied for 80% of the year
• at 20% of the year, the actual occupation threshold is low, even allowing for limited tourist seasons and variable demand

Equivalence with other thresholds

A higher non-domestic rates threshold that has been applied in Wales from April 2023 was noted, with a suggestion that a similar standard should be introduced in Scotland, or that emerging evidence on the effectiveness of the change in Wales should be evaluated when considering policy for Scotland.

Another proposal was that levels should be increased to be in line with HMRC’s criteria for self-catering businesses.

Alternatives to increasing non-domestic rates thresholds

Rather than increasing non-domestic rates thresholds it was suggested that alternative approaches could be to:

• limit or remove SBBS relief for self-catering accommodation
• apply non-domestic rates only to purpose-built self-catering accommodation
• place all self-catering properties on the Council Tax register

On the last point it was suggested that domestic properties purchased for the short-term let market should remain on or return to Council Tax register such that landlords could factor the charge into their rental levels. Removal of the need to check days available / days let was seen as one advantage of this approach.

Thresholds should decrease

Points raised included that, despite the best efforts of owners, it can be difficult to the meet current non-domestic rates threshold for days actually let due to lack of demand. It was argued that targets that are achievable in some parts of Scotland will not be appropriate everywhere, and that a one size fits all approach should be avoided.

Reasons cited included:

• poor weather and a short tourist season, particularly impacting rural areas
• for islands, ferry cancellations damaging visitor numbers
• impacts of both COVID and the cost-of-living crisis in reducing visitor numbers

It was also suggested that thresholds should be reduced to bring more self-catering lets under the non-domestic rates regime, although this tended to be by respondents who favoured removal of all SBBS rates relief for these businesses.

Reasons that letting thresholds should not be changed

The most frequently made point by respondents who did not think that current thresholds should be changed was that the levels are reasonable as they are. It was also suggested that the consultation should:

• better recognise the importance of tourism and tourist accommodation to the Scottish economy
• avoid conflating issues relating to second homes and empty homes with self-catering properties

A Tourism respondent making this latter point contrasted the negative impacts of the first two classes of property with what they saw as the many positive impacts self-catering units can have.

Recent regulatory changes

A number of additional regulatory requirements imposed in recent years were highlighted – for example the introduction of licensing for short-term lets – with an associated argument that these changes have already added to cost and administrative burdens for operators in the tourism sector, some of whom are still struggling to recover from the effects of the COVID pandemic. It was also noted that the current non-domestic rates thresholds, recommended by the independent Barclay Review of non-domestic rates^[13] only came into force in April 2022, with provision of evidence required from 1 April 2023. In this context, it was argued both that it is too soon to consider further changes to non-domestic rates for self-catering accommodation, and that there is insufficient evidence to support such changes.

“The letting thresholds have only just changed. It would be extremely foolhardy to contemplate tinkering … until they have properly bedded in. I am incredulous that such a thing would even be being considered, given the huge raft of regulatory changes that self-catering is already grappling with…” Individual (self-identified as self-catering accommodation operator)

It was also reported that, following creation of a New Deal for Business Group by the First Minister earlier in 2023, a subgroup has been tasked with advising on further enhancements to the non-domestic rates system, following the implementation of the final recommendations of the Barclay Review on 1 April 2023. It was suggested that it would not make sense to proceed with introduction of further changes to non-domestic rates independently of this group’s remit.

Other reasons for retaining current levels

Other arguments in favour of the status quo included that:

• as cited by respondents seeking a reduction in thresholds, there are many factors beyond an owner’s control that mean a property may struggle to meet current required occupancy levels
• owners also require access to their property for personal use
• a property let for 70 nights per year is clearly being run as business
• the recent changes in Wales will damage self-catering businesses in areas where there is less tourism
• many farm businesses provide self-catering accommodation in farm cottages/houses, generating important income in a sector where energy and other input costs have risen very substantially

It was also argued that there needs to be flexibility where thresholds are missed, and VisitScotland data showing variable occupancy rates for different types of area and property was cited as an illustration that targets will be much more challenging for some properties.

Other issues raised

Tourism respondents were among those who argued that rather than separate ‘actual days let’ and ‘days available’ thresholds there should be a single threshold for ‘days let’ – albeit going on to suggest very different levels at which this threshold should be set. Reasons for proposing a single threshold included that separate ‘actual days let’ and ‘days available’ thresholds are confusing, and that it is not clear how an operator can evidence the availability of their property.

Question 14 – If you have answered yes to Question 13, what do you think the threshold for the number of days self-catering accommodation must actually be let for should be?

Responses to Question 14 by respondent type are set out in Table 16 below.

Table 16: Responses to Question 14 by respondent type

Organisations	50 days	100 days	140 days	180 days	Other	Totals
Campaign group or union	-	-	1	1	2	4
Community or Development Trust	1	-	1	3	-	5
Housing	-	-	-	-	-	0
Local authority	-	4	4	4	7	19
Public body or agency	-	-	-	0	2	2
Representative or professional body	-	-	-	1	3	4
Tourism, including accommodation provider	-	-	-	1	4	5
Other	-	-	-	-	-	0
Total organisations	1	4	6	10	18	39
% of organisations	3%	10%	15%	26%	46%
Individuals	60	30	25	96	243	454
% of individuals	13%	7%	6%	21%	54%
All respondents	61	34	31	106	261	493
% of all respondents	12%	7%	6%	22%	53%

Percentages may not sum to 100% due to rounding

A small majority of respondents – 53% of those answering the question – did not support any of the suggested thresholds for the number of days self-catering accommodation must actually be let for and selected the ‘Other’ option.

Of the remaining respondents, 22% supported a 180 day threshold, 12% favoured 50 days, 7% favoured 100 days and 6% favoured 140 days. Support for the 180 days, 140 days and 100 days options was higher among organisations than individuals.

Some of the respondents answering Question 14 had not answered Yes at Question 13.

Please give reasons for your answer

Around 430 respondents^[14] provided a comment at Question 14.

50 days actually let

Most of those respondents who selected 50 days had indicated at Question 13 that they favoured a reduction in current thresholds. Reflecting reasons given at Question 13, lack of demand outside the short tourist season, especially in remote rural and island areas, was often seen as a barrier to achieving even 70 days actually let. Other issues raised included the high level of winter heating costs for some properties, particularly if reliant on electricity.

“It's easy to increase the threshold in Edinburgh or Loch Ness, but not in our area, where we struggle to find guests from October to May. Besides the current price of electricity makes it impossible to let our property in the ‘off season’ at a rate that covers our ‘electric only’ property.” Individual (self-identified as self-catering accommodation operator)

A very different perspective, from a respondent who favoured removing eligibility for SBBS from self-catering units, was that the threshold should be reduced to bring more properties into the non-domestic rates regime.

100 days actually let

Arguments made by those chose the 100 day threshold included that this is a modest or reasonable target, including because an operator running a business would be aiming to achieve a higher occupancy level. Scotland’s relatively short tourist season was also referenced, with one Local authority respondent arguing that the season is roughly 200 days, so a property let for 50% of the season should be able to achieve 100 days. It was also suggested that 100 days would effectively be the full summer season, but again that this would not be unreasonable, and that it should be achievable for remote areas and those with limited demand for parts of the year.

Requiring accommodation to be available for a longer period than at present, potentially at a more competitive price, was seen as benefiting the local economy, including by extending the operating period for other seasonal businesses.

140 days actually let

Respondents who selected 140 days and went on to comment often gave similar reasons to those who opted for 100 days – including that the number seems reasonable, that 20 weeks would cover a season from May – September, and that making accommodation available over a longer period than at present will benefit local communities. There was also a view that local authorities with high volumes of second homes that are let as self-catering accommodation would benefit since homes would be let for longer and could help meet local demand, especially in more rural areas where there is a lack of housing for key workers.

It was also suggested that 140 days would bring holiday lets in line with criteria set by HMRC, namely that a property needs to be available for 210 days per year, and actually let for 140 days.

180 days actually let

Among respondents opting for 180 days, one suggestion was that being let for around 50% of the year would be reasonable or achievable, particularly for genuine businesses, and would make a greater contribution to local economy. A further reason was that 180 days would be in line with the thresholds being introduced in Wales, where a property now needs to be available for 252 days and actually let for 182 days in a 12-month period.

However, the most frequent position was that threshold for non-domestic rates should be set such that more self-catering properties pay Council Tax. Respondents again referenced the possibility that, if qualifying for the non-domestic rates regime, self-catering accommodation could also be eligible for 100% rates relief.

“Given that if they meet the threshold for non-domestic rate, they are then available for non-domestic rate relief, this means that too many self-catering owners are evading contribution to local taxes.” Individual

Other ‘actually let’ thresholds suggested

Around 245 respondents who selected ‘other’ or did not answer the closed question went on to specify what they thought the threshold should be. Amongst these a majority indicated a preference for thresholds above the current 70 days, with 250 (or 250+) days being the most frequent choice, followed by 200 days and then 300 days. A minority selected a threshold of less than 50 days.

More than 200 days actually let

Among respondents who proposed 200, 250, 300 days or more actually let, the most frequent position was again that the threshold for non-domestic rates should be set such that more self-catering properties pay Council Tax, with respondents often citing the availability of SBBS relief as meaning many properties do not pay any local taxes.

It was also suggested that:

• 200 days actually let would demonstrate that the accommodation is functioning as a proper business
• occupancy for around two thirds of the year would be reasonable
• if it is a business, a property should be let for the whole year, or that no time should be reserved for use by the owner
• a threshold of 262 days should be coupled with a reassessment of rateable values and creation of a new planning class for self-catering properties

Values between 50 and 200 days actually let (other than 100, 140 and 180)

One suggestion was that property should be available for 210 days and actually let for 105 days to match HMRC’s criteria for a Furnished Holiday Let as demonstrating a business intended for profit. Simplifying the evidencing process for operators was seen as an advantage of this approach.

Other suggestions included that a property should be actually let for:

• at least 70 days, retaining the current threshold
• at least a third of the year – so around 120 days
• 120 - 140 days, and that inability to achieve this level of occupancy may indicate oversupply of accommodation in the area
• the majority of the year – around 185 days

Fewer than 50 days actually let

Respondents who suggested fewer than 50 days sometimes highlighted similar issues around limited demand as those who opted for 50 days. Specific suggestions with respect to lower threshold values included 14, 28 and 48 days. Other views were that there should be no threshold and that all domestic properties should be liable for Council Tax or, alternatively, that any property that is available for let should be taxed as a business.

Other approaches

Suggestions for alternative approaches included introducing a requirement for self-catering properties to be registered for secondary letting with the local authority, and that such a licence could be a trigger for application of non-domestic rates.

Question 15 – If you have answered yes to Question 13, what do you think the threshold for the number of days self-catering accommodation must be available to let should be?

Responses to Question 15 by respondent type are set out in Table 17 below.

Table 17: Responses to Question 15 by respondent type

Organisations	120 days	160 days	200 days	250 days	Other	Total
Campaign group or union	-	-	1	1	2	4
Community or Development Trust	1	-	1	3	-	5
Housing	-	-	-	1	-	1
Local authority	-	1	3	6	9	19
Public body or agency	-	-	-	1	2	3
Representative or professional body	-	-	-	1	2	3
Tourism, including accommodation provider	-	-	-	-	3	3
Other	-	-	-	-	-	0
Total organisations	1	1	5	13	18	38
% of organisations	3%	3%	13%	34%	47%
Individuals	42	18	32	123	205	420
% of individuals	10%	4%	8%	29%	49%
All respondents	43	19	37	136	223	458
% of all respondents	9%	4%	8%	30%	49%

Percentages may not sum to 100% due to rounding

As at the previous question, the largest proportion of respondents – in this case 49% of those answering the question – did not support any of the suggested thresholds for the number of days self-catering accommodation must be available to let and selected the ‘Other’ option.

Of the remaining respondents, 30% supported a 250-day threshold, 9% favoured 120 days, 8% favoured 200 days and 4% favoured 160 days. Support for the 200 days and 250 days options was higher among organisations than individuals, but support for the 120 days option was lower.

Some of the respondents answering Question 15 had not answered Yes at Question 13.

Please give reasons for your answer

Around 395 respondents^[15] provided a comment at Question 15.

120 days available to let

Most of those respondents who thought the threshold for availability should be reduced to 120 days had opted for 50 days actually let at Question 14. Relatively few explained their reasons, but those who did tended to reference issues in relation to limited demand in relation to the short tourist season. At around a third of the year, 120 days was seen as a reasonable period for most areas of Scotland.

Again advocating the same threshold but from a rather different perspective, a respondent who favoured removing of eligibility for SBBS from self-catering units, argued that the threshold should be reduced to 120 days to bring more properties into the non-domestic rates regime.

160 days available to let

Among respondents who explained why they had opted for 160 days available there were references to Scotland’s short tourist season, the right of owners to be able to use their property during part of the short summer, and costs associated with keeping a business open even if there are no customers. There was also a view that 160 days is a reasonable figure or that a serious business should be able to achieve such a target.

200 days available to let

The most frequent reason given in support of a threshold of 200 days was that property should be available for at least half of the year. There was also a suggestion that this availability period should cover the main tourism season, to avoid a property being available but rarely let.

It was also suggested that 200 days would be a reasonable threshold and that higher occupancy levels can benefit local communities.

250 days available to let

The most frequent view among respondents who chose 250 days was that the threshold should be set such that more self-catering properties pay Council Tax. Respondents again referenced the possibility that, if qualifying for the non-domestic rates regime, self-catering accommodation could also be eligible for 100% rate relief. It was also noted that 250 days would be broadly in line with the new requirement in Wales.

Other reasons given in support of 250 days included that:

• this would be a reasonable level for classification as commercial rather than domestic premises, or that providing self-catering accommodation should be the main function, so a property should be available for more than half the year
• availability for 250 days demonstrates a genuine business is being run but still leaves time for the owner to use their property and for essential maintenance
• longer availability will support the local economy, increase letting outside the main tourist season and encourage reduced prices

Other ‘available to let’ thresholds suggested

Around 260 respondents who selected ‘other’ or did not answer the closed question went on to specify what they thought the threshold should be.

Reflecting comments at Question 14, a majority indicated a preference for values above the current threshold, with 300 or more days being the most frequent choice, followed by 365 days and then 250 - 300 days.

More than 250 days available to let

Reasons for selecting a value of 250 days or more included that this would mean that property is let for around 75% of the year.

Among respondents who proposed values of 300 days up to a full year, the most frequent position was again that the threshold for non-domestic rates should be set such that more properties pay Council Tax. Other comments included that the value chosen self-catering would allow a short period for property maintenance or for personal use by the owner.

Values between 120 and 250 days available to let (other than 160 and 200)

Only a small number of respondents suggested intermediate values, the most frequent being 210 days to align with HMRC criteria.

Points in favour of a threshold of 180 days included that this equates to around six months – equivalent to a tourist season from April to September/October, while other respondents argued for retaining the existing threshold of 140 days.

Fewer than 120 days available to let

Reasons given by respondents who suggested fewer than 120 days tended to be similar to those who selected 120 days – including limited demand in some areas, that owners of domestic property should always pay Council Tax, or that any use of the property for self-catering accommodation should render a property liable for non-domestic rates.

Relative importance of days available and days actually let thresholds

Differing views were expressed on the relative importance of the two non-domestic rates qualifying thresholds, with opinions that:

• actual occupation is more important than availability
• the emphasis should be on availability or that days available and promoted is as important as days actually let
• requirements for both advertising and letting conditions are important, and that unless both criteria are met a property should be subject to Council Tax

Question 16 – Do you think councils should have discretion to change the self-catering accommodation ‘days actually let’ threshold, for their local area?

Responses to Question 16 are set out in Table 18 below.

Table 18: Responses to Question 16 by respondent type

Organisations	Yes	No	Don't know	Total
Campaign group or union	4	1	-	5
Community or Development Trust	6	-	-	6
Housing	1	-	1	2
Local authority	16	7	1	24
Public body or agency	4	-	-	4
Representative or professional body	7	-	-	7
Tourism, including accommodation provider	2	8	-	10
Other	-	-	-	0
Total organisations	40	16	2	58
% of organisations	69%	28%	3%
Individuals	473	248	115	836
% of individuals	57%	30%	14%
All respondents	513	264	117	894
% of all respondents	57%	30%	13%

Percentages may not sum to 100% due to rounding

A small majority of respondents – 57% of those answering the question – thought that councils should have discretion to change the self-catering accommodation ‘days actually let’ threshold for their local area. Of the remaining respondents, 30% thought they should not and 13% did not know.

At 69% of those answering the question, organisations were more likely to support councils having discretion. Tourism organisations were the only group in which a majority were not in favour.

Please give reasons for your answer

Around 545 respondents provided a comment at Question 16.

Reasons councils should have discretion to change the ‘days actually let’ threshold

The ability to address local housing issues was the most frequently given reason for supporting councils having discretion to change the threshold for days actually let, with many respondents making an associated point, that this discretion should only extend to increasing the threshold. One suggestion was for power to increase the threshold within an upper limit.

Another frequently raised issue was the importance of flexibility to suit local circumstances, and it was suggested that the council is best placed to understand these issues.

“This will enable local authorities to adopt a place-based approached that best addresses the needs and circumstances of their communities.” Public body or agency

The length of the tourist season in different areas and local demand for, and impact of, holiday lets were also referenced as variables best addressed by council discretion in setting the threshold.

Local authority respondents were among those who argued that it will be important to design policy to suit local circumstances. It was suggested that local decision-making should be proportionate, fair and transparent. There was also reference to requiring:

• modelling and impact assessments for the local area
• evidence of the need for change and of the local benefits that will be delivered
• consultation with local communities and enterprises, including providers

There were also calls for council discretion to mitigate impacts outside the control of a property owner, including taking a flexible approach where thresholds are not met. A Representative body respondent making this point argued that if an unexpected event that means the threshold is not met in a single year, it would be reasonable for a council to use discretion rather than disqualifying a self-catering business from business rates.

Reasons councils should not have discretion to change ‘days actually let’ threshold

Respondents who did not agree with council discretion to set the threshold often referenced the importance of consistent, national standards. It was suggested that allowing rules to vary between areas would be confusing or unfair, and could risk creating a postcode lottery. The number of different short-term let licencing regimes now in place was also cited.

“The result would be fragmentation and confusion, where we need certainty.” Tourism

Specific problems anticipated if thresholds were allowed to diverge included:

• adverse comparisons being made between councils and risk of disputes between owners and councils
• both potential confusion and additional overheads for operators, some of whom may operate across boundaries
• risks that individual businesses will be put at a competitive disadvantage or that businesses will close in areas where it is not possible to meet a higher threshold

Among the respondents making these points were the two Local authorities that the consultation paper reports to have the highest numbers of self-catering properties. One suggestion was that authorities should instead use discretionary powers to act in exceptional circumstances and that provision for this exists Council Tax regulations.

Other points raised in favour of a single, nationally set threshold for actual days let included that:

• both non-domestic rates and eligibility for the SBBS are set nationally, and that a business is a business irrespective of where it is
• there is a risk individual councils could use their discretion to change the threshold as a way to raise revenue
• there is a risk councils could succumb to influence by lobbying from owners or businesses who do not want to see thresholds increased

Question 17 – If you answered yes to Question 16 do you think that councils should have discretion to:

• Increase the number of days actually let only
• Decrease the number of days actually let only
• Increase or decrease the number of days actually let

If you think councils should have discretion to do something else, please specify

Responses to Question 17 are set out in Table 19 below.

Table 19: Responses to Question 17 by respondent type

Organisations	Increase	Decrease	Increase or decrease	Total
Campaign group or union	1	-	3	4
Community or Development Trust	3	1	2	6
Housing	1	-	-	1
Local authority	1	1	14	16
Public body or agency	1	-	3	4
Representative or professional body	1	-	5	6
Tourism, including accommodation provider	-	-	2	2
Other	-	-	-	0
Total organisations	8	2	29	39
% of organisations	21%	5%	74%
Individuals	242	57	188	487
% of individuals	50%	12%	39%
All respondents	250	59	217	526
% of all respondents	48%	11%	41%

Percentages may not sum to 100% due to rounding

Respondents were relatively evenly divided between those who thought that councils should only have the discretion to increase the number of days actually let – 48% of those answering the question – and those who thought they should have the discretion to increase or decrease the number of days – 41% of those answering the question. Only 11% of those answering the question thought they should only have discretion to decrease the number of days.

The proportion of organisations supporting councils having discretion to both increase and decrease the number of days was higher than for individuals, at 74% of those answering the question.

Some of the respondents answering Question 17 had not answered Yes at Question 16.

Please give reasons for your answer

Around 320 respondents^[16] provided a comment at Question 17.

Increase the number of days actually let only

Among Individual respondents favouring discretion solely to increase the number of days actually let, a majority who commented referenced housing shortages, with the most frequent comment again that councils should be able to increase the threshold higher than the national average to address local housing issues.

Among organisations, the single local authority respondent selecting this option noted the capacity to increase the threshold within set limits would allow generation of additional income to support the local services that accommodation businesses rely on.

Decrease the number of days actually let only

Respondents who supported discretion to decrease the number of days often referenced factors that mean accommodation providers may find it difficult to let their property for the required number of days. Very much reflecting answers to previous questions, the short letting season in some parts of Scotland, disruption to ferry services impacting visitors to island communities, COVID and the cost-of-living crisis, were all referenced as reasons that the council should only reduce the threshold for days actually let. Reducing the threshold was also suggested as a way for a council to encourage letting and boost the local economy during short busy periods.

Increase or decrease the number of days actually let

Reasons given for selecting this option included that councils are best placed to set a threshold based on differing local circumstances such as the varying length of tourism seasons across Scotland, varying numbers of tourists and varying extent of local housing pressures. It was argued that there should not be a one size fits all approach.

It was also suggested that:

• local authorities should be given maximum flexibility to take a place-based approach and that options to increase or decrease the threshold would provide tools to fine tune local policy
• local policy requirements may vary over time
• freedom to change thresholds should be within a defined range rather than being uncapped
• discretion should also be exercised with respect to individual property owners who have not been able to meet the threshold

A rather different perspective was that local autonomy requires councils to be allowed to make decisions that affect their area.

Discretion to do something else

The most frequent suggestion was again that councils should have discretion to raise the threshold above the national average in order to address local housing issues, although an option for discretion to increase the threshold for days actually let only was given at this question. Other proposals, although each raised only by a very small number of respondents at this question included council discretion to:

• change the threshold for the number of days available to let
• recommend a reduction in days actually let, but with the final decision made by a higher authority
• amend the SBBS criteria relating to self-catering accommodation
• consider the suitability of a property as a main residence, including any planning restrictions that would limit its use as such
• base charges on the income derived from the property rather than on level of usage

Question 18 – Do you have any other comments on the non-domestic rates system in respect of self-catering accommodation? Please provide your views.

Around 375 respondents answered Question 18 although many points have already been referenced in responses to earlier questions.

Eligibility for SBBS rates relief

The most frequently made point was that self-catering businesses should not be eligible for SBBS business rates relief, with an associated suggestion that such properties should be revalued and placed in a separate planning use class. One suggestion was that excluding properties from SBBS rates relief could be achieved either through a change to legislation or by allowing local authority discretion on the matter.

Respondents also argued that SBBS rates relief should be reviewed or should be less generous than at present. Suggestions included that:

• a maximum of 25% rates relief could be allowed
• only purpose-built holiday accommodation should be eligible for SBBS relief
• rates relief could be awarded to smaller businesses where there is greater scope for a positive impact on local employment

It was also suggested that criteria for a property to be considered to be a self-catering unit should be rigorous in light of the relief available and there was a concern that the financial benefits of being in receipt of SBBS relief compared to a requirement to pay a Council Tax premium on a second home could lead to abuse of the system.

Who should pay non-domestic rates

There was a view that a simple solution would be for all domestic properties, including those run as self-catering businesses, to be liable for Council Tax. Alternative proposals included that:

• all short-term let operators should pay non-domestic rates
• only purpose-built holiday accommodation should be on non-domestic rates
• self-catering properties with rateable values below the SBBS threshold could be deemed to be liable for Council Tax and those above the threshold could be liable to non-domestic rates
• non-domestic rates could be charged on a sliding scale based on turnover
• a minimum tax liability could be used to address the interaction between Council Tax and non-domestic rates such that a property classed as self-catering accommodation for the purposes of non-domestic rates would be liable for a minimum tax equivalent to the total Council Tax liability (including premiums) to which they would otherwise be subject
• consideration could be given to whether short-term let licensing might be used to close any second home/self-catering loopholes without changing the non-domestic rates regime for genuine businesses

There were also references to the New Deal for Business, including that:

• non-domestic rates are being considered as part of the New Deal for Business and that this should look to enhance the way non-domestic rates are applied, including to self-catering, to best support business outcomes
• businesses must be adequately consulted when regulatory changes which have the potential to have a significant impact on their operation are being considered

Other charges that are paid by operators

A small number of respondents who identified themselves as operators of self-catering accommodation sought to counter an impression that they avoid paying any charges, for example noting costs associated with commercial waste collection and water charges, which one respondent reported to be around two thirds of standard Council Tax. Costs associated with the new short-term lets licencing regime were also highlighted in addition to routine expenses associated with servicing and maintaining a property. Any idea that all second home owners are wealthy was also disputed.

Impact of new rateable values

It was suggested that the 2023 revaluation has seen an average increase of 50% in rateable values^[17] at the same time as the threshold value for SBBS 100% relief has been reduced from £15,000 to £12,000. One respondent reported their own experience of a rateable value rise in excess of 50% and others expressed a view that, in light of recent increases in rateable value, loss of rates relief could mean they no longer make any profit.

However, an alternative view was that, despite revaluations, rateable values for some self-catering properties remain low, when considered in the light of publicly available nightly rental charges.

Potential impacts on tourism

Respondents highlighted the importance of the self-catering sector to tourism in Scotland, or voiced concerns that tourism could be adversely impacted. It was argued that local authorities should consider whether changes to non-domestic rates thresholds would impact on their ability to achieve strategic, place-based objectives that relate to tourism.

One respondent argued that although the partial Business Regulatory Impact Assessment (BRIA) highlights changes in Wales as a reason for Government intervention, it would be a mistake to follow the same course. Further comments in support of this view included that:

• Scotland cannot reasonably be compared to Wales as the two countries and their respective visitor markets are very different
• recently increased non-domestic rates thresholds for self-catering accommodation in Wales are already having negative impacts, with a significant number of businesses expected to struggle to meet new levels required to qualify for non-domestic rates.

Practical issues for Councils and Assessors

One Local authority respondent noted their view that the definition of self-catering accommodation for Council Tax purposes is at odds with the Civic Government (Scotland) Act 1982, (Licensing of Short Term Lets) Order 2022^[18] which states that standard conditions determined in respect of a short-term let licence must not impose a limit on the number of nights for which premises may be used for secondary letting. This was seen as removing the power for a local authority to restrict the usage of any holiday accommodation that has a short-term let licence.

Administrative issues arising from retrospective evidencing of actual days let were also reported, with a suggestion that, for Assessors, the process could be streamlined by setting a legislative timescale for the supply of information and setting out the consequences if information is not returned.

It was also suggested that inconsistencies in the way subjects are entered on the Valuation Roll should be standardised – either as a single entry for each subject located on a site owned by a business, or by the business being an individual entry.

Behaviours of second home owners

At Questions 19 and 20 second home owners (and potential owners) were asked what they would do in two different scenarios: (i) that both applicable Council Tax rates and non-domestic rates thresholds increased; or (ii) that Council Tax rates stayed as they are (with no premium charged) but non-domestic rates thresholds increased. A third potential scenario, where Council Tax premiums are charged but non-domestic rates thresholds are unchanged was covered at Question 6.

Question 19 – If you do, or were to, own a second home please tell us what you would do in the event that the applicable rate of council tax and non-domestic rate thresholds both increased?

Responses to Question 19 by respondent type are set out in Table 20 below.

Table 20: Responses to Question 19 by respondent type

Option	Number of respondents	% of all respondents
A: The home is already used as a private residential tenancy	36	6%
B: I would continue to use it purely for personal use and pay the higher rate of council tax	74	12%
C: I would continue with split use between self-catering accommodation (below the thresholds to be liable for non-domestic rates) and personal use, and pay council tax	30	5%
D: My second home already has/would have split use between self-catering accommodation (below the non-domestic rates threshold) and personal use. Rather than pay the higher rate of council tax, I would increase the number of days the accommodation is available to let and actually let in order to meet the non-domestic rates thresholds	28	4%
E: My second home already has/would have split use between self-catering accommodation (above the non-domestic rates threshold) and personal use. Rather than revert to paying council tax, I would increase the number of days the accommodation is available to let and actually let in order to meet the higher non-domestic rates thresholds	26	4%
F: My second home is purely for personal use. However, in order to stop paying council tax, I would make it available as self-catering accommodation and let it for the number of days I needed to in order to be liable for non-domestic rates	39	6%
G: I use my second home purely for personal use but I would change its use to a private residential tenancy	27	4%
H: I use my second home as self-catering accommodation (below the non-domestic rates threshold) but I would change its use to a private residential tenancy	8	1%
I: I would seek reclassification as an empty home and pay council tax	15	2%
J: I would sell the second home	197	32%
K: Something else	145	23%
Total	625

Percentages may not sum to 100% due to rounding.

The most frequent answer – given by 32% of those answering the question – was that respondents would sell their second home if the applicable rate of Council Tax and non-domestic rates thresholds both increased. A further 12% said they would continue to use it purely for personal use and pay the higher rate of Council Tax.

‘Something else’ was selected by 23% of those answering the question.

Please give reasons for your answer

Around 325 respondents^[19] provided a comment at Question 19.

A: The home is already used as a private residential tenancy

Respondents who selected this option made only very limited additional comments.

B: I would continue to use it purely for personal use and pay the higher rate of council tax

Although choosing this option, some respondents indicated that they could not afford to pay a premium rate of Council Tax, thought the policy very unfair, or intended to challenge it.

Respondents also explained reasons that they would keep the property entirely for personal use, including because of their own very regular use, a requirement for the owner to act as a carer, supporting work between different locations, or that it has been adapted for use by a disabled family member.

It was also reported that some properties would not be suitable for short-term let use.

C: I would continue with split use between self-catering accommodation (below the thresholds to be liable for non-domestic rates) and personal use, and pay council tax

Respondents who selected this option made only very limited additional comments.

D: My second home already has/would have split use between self-catering accommodation (below the non-domestic rates threshold) and personal use. Rather than pay the higher rate of council tax, I would increase the number of days the accommodation is available to let and actually let in order to meet the non-domestic rates thresholds

Comments with respect to this option were limited, but included that meeting a threshold with respect to days actually let may be beyond the owner’s control.

E: My second home already has/would have split use between self-catering accommodation (above the non-domestic rates threshold) and personal use. Rather than revert to paying council tax, I would increase the number of days the accommodation is available to let and actually let in order to meet the higher non-domestic rates thresholds

Among respondents who indicated that they would seek to meet higher non-domestic rates thresholds, a small number indicated that their property is already run as a full-time self-catering business, available all year round. While one respondent reported that they would already meet higher non-domestic rates thresholds others noted that their ability to do so would depend on what thresholds are set, or that meeting a threshold with respect to days actually let may be beyond the owner’s control. Existing costs and regulatory requirements facing operators were also highlighted.

F: My second home is purely for personal use. However, in order to stop paying council tax, I would make it available as self-catering accommodation and let it for the number of days I needed to in order to be liable for non-domestic rates

Some respondents who chose this option indicated that they would do so to minimise the impact of additional Council Tax payments. Others noted that it would require them to reduce their personal use.

G: I use my second home purely for personal use but I would change its use to a private residential tenancy

Respondents who selected this option made only very limited additional comments.

H: I use my second home as self-catering accommodation (below the non-domestic rates threshold) but I would change its use to a private residential tenancy

Only a small number of respondents indicated an intention to change self-catering accommodation into a PRT and none made substantive comments.

I: I would seek reclassification as an empty home and pay council tax

Few respondents who selected this option commented further. One who did noted that their self-catering business already makes very limited profits and that increased non-domestic rates thresholds would mean closing the business and seeking reclassification as an empty home until it could be sold.

J: I would sell the second home

As noted above, selling the second home was much the most frequently chosen option at Question 19. However, as at Question 6, some respondents indicated that they do not own, would not own or do not agree with ownership of second homes.

Otherwise, the most frequent comment was that the respondent would be unable to afford to pay a Council Tax premium. Other reasons included that the owner does not wish to run a business or that letting would the stop personal use for which the property was acquired.

K: Something else

The analysis below also includes points made by respondents who did not answer the closed question but went on to make a comment.

As noted above, ‘something else’ was the most frequent choice at Question 19, although some respondents gave responses that did correspond to one of the options given in the consultation paper. Also as at other options, some respondents indicated that they do not own, would not own or do not agree with ownership of second homes.

Otherwise, the most frequent answer was that respondents simply do not yet know what they would do, with some taking the view that this would depend on the rates that are set. Other actions that smaller numbers of respondents indicated that they could take included:

• putting ownership of the second home in the name of another family member
• making the second home their main residence
• refusing to pay a Council Tax premium and seeking to challenge the policy

One Local authority respondent reported feedback from their own Council Tax payers, suggesting that all of the options listed in the consultation paper could apply depending on individual circumstances.

Responses to Question 20 by respondent type are set out in Table 21 below.

Question 20 – If you do, or were to, own a second home please tell us what you would do in the event that:

a) council tax powers remained as they are for second homes (i.e. no provision for councils to charge a premium), but

b) the ‘thresholds’ to be classed as self-catering holiday accommodation for non-domestic rates purposes increased?

Table 21: Responses to Question 20 by respondent type

Option	Number of respondents	% of all respondents
A: The home is already used as a private residential tenancy	41	7%
B: I would continue to use it purely for personal use and pay council tax	251	40%
C: I would continue with split use between self-catering accommodation (below the thresholds to be liable for non-domestic rates) and personal use, and pay council tax	51	8%
D: My second home already has/would have split use between self-catering accommodation (above the non-domestic rates threshold) and personal use. I would increase the number of days the accommodation is available to let and actually let in order to meet the higher non-domestic rates thresholds	49	8%
E: I use my second home as self-catering accommodation (above the current non domestic rates threshold). If I was not able to meet the new thresholds, I would change its use to a private residential tenancy	24	4%
F: I would seek reclassification as an empty home and pay council tax	13	2%
G: I would sell the second home	111	18%
H: Something else	83	13%
Total	623

Percentages may not sum to 100% due to rounding.

The most frequent answer – given by 40% of those answering the question – was that, if there was no provision for councils to charge a premium for second homes but the thresholds for non-domestic rates is increased, they would continue to use their home purely for personal use and pay Council Tax. However, 18% of those answering said they would sell their second home.

Option H – ‘something else’ was selected by 13% of those answering the question.

Please give reasons for your answer

Around 225 respondents^[20] provided a comment at Question 20.

A: The home is already used as a private residential tenancy

Respondents who selected this option made only very limited additional comments.

B: I would continue to use it purely for personal use and pay council tax

Some respondents who indicated that they would continue to use their property entirely for personal use noted that they are happy to pay standard Council Tax. Others observed that:

• they do not want to be landlords or make money out of their second home
• the change in non-domestic rates has no impact for them
• raising non-domestic rates thresholds would not incentivise letting

It was also argued that this approach retains the conditions that informed the decision to buy a second home. One respondent noted that if they had known that a Council Tax surcharge was being considered they might not have purchased the property.

C: I would continue with split use between self-catering accommodation (below the thresholds to be liable for non-domestic rates) and personal use, and pay council tax

Among respondents choosing this option, the most frequent comment concerned the difficulties of meeting the non-domestic rates threshold for days actually let, for reasons discussed previously.

D: My second home already has/would have split use between self-catering accommodation (above the non-domestic rates threshold) and personal use. I would increase the number of days the accommodation is available to let and actually let in order to meet the higher non-domestic rates thresholds

A small number of respondents who indicated that they would seek to meet higher non-domestic rates thresholds noted that they already make their self-catering properties available to let for 365 days a year, so this aspect cannot be increased. It was also suggested that it is not possible to guarantee the number of days actually let.

An additional point was that increased occupancy is not necessarily a pleasant prospect for neighbours of self-catering properties who are likely to experience further disturbance.

E: I use my second home as self-catering accommodation (above the current non domestic rates threshold). If I was not able to meet the new thresholds, I would change its use to a private residential tenancy

Respondents who selected this option made only very limited additional comments.

F: I would seek reclassification as an empty home and pay council tax

The respondents who selected this option made no additional comments.

G: I would sell the second home

As at earlier questions, the most frequent comment made by those who said they would sell the second home was that the respondent does not own, would not own or does not agree with ownership of second homes. Few other points were raised.

H: Something else

The most frequent comment was again that the respondent does not and would not own a second home, or does not agree with ownership of second homes. Other respondents noted that they did not know what they would do, or that their decision would depend on either personal circumstances or the rates set.

A small number of respondents made points specifically on the future viability of self-catering accommodation, with comments including a view that current non-domestic rates thresholds are unachievable or barely achievable in some areas, where higher levels would probably be impossible to meet. One respondent observed that, although above the current non-domestic rates threshold, if unable to achieve higher thresholds they would probably sell rather than getting involved with the regulations around PRTs. Another suggested that they would close the business and make the property their main residence.

A small number of respondents noted that their property is already operated wholly as self-catering accommodation with high levels of occupancy such that they would expect to meet new thresholds. However, one expressed concerns regarding the viability of the business if SBBS relief were to be discontinued.

As at Question 19, one Local authority respondent reported feedback from their own tax payers and the actions they had indicated they would take.