Furnished Holiday Lettings – Legislative Changes in Scotland

The growth of the Airbnb rental market in recent years has provided an incentive for property owners to set up a FHL business. Property owners have been attracted by the prospect of higher rental yields and a more favourable tax regime.

Legislators in Scotland became concerned that the growth in the Airbnb rental market was impacting upon the availability of accommodation for long-term lets. In particular, it was evident that the types of properties being used as FHLs had broadened to include for example flats in tenement blocks.

Licensing System

A licensing system was introduced in Scotland in October 2022 with each of the 32 local councils in Scotland having their own scheme.

Owners of existing FHLs had until October 2023 to apply for a licence and owners of new FHL businesses will need to hold a licence before they can start in business. Licences will be granted for a period of up to 3 years.

This process can take several months and FHL owners may have struggled to have a licence in place before the October 2023 deadline.

Planning Control Areas

Local authorities have also been given the power to designate short term let Planning Control Areas (PCAs). This will mean that FHL business owners in these areas will need to apply for and receive planning permission from their local authority. This could take several months to process.

Edinburgh Council is the only local authority that has decided to introduce a PCA, although the Highland Council currently has this matter under review.

There has been considerable resistance to these powers due to the impact on FHL businesses, and they have been the subject of a recent court case. It had been reported that all planning permissions lodged in tenement properties had been rejected, on the basis that they are not the type of accommodation that’s suitable to be a holiday let. The Court of Session decided that it was illegal to refuse an application for planning permission and a licence simply on the basis that a FHL property was in a tenement.

There will be additional costs associated with an application for planning permission and these will include architect’s fees.

In my final blog I consider the tax implications of these changes for FHL business owners should they decide to discontinue their FHL business.