A TAX loophole means taxpayers are subsidising Airbnb property owners in Edinburgh by up to £2.6 million.

Research published by short-term rental website Airbnb suggests that hosts in the capital made £78m from letting out their properties last year.

However, many are paying nothing in council tax for services, such as bin collections and pavement repairs, from which they and their tenants benefit.

The majority of the hosts, totalling more than 1,000 property owners, declare their short-term lets to the tax office as a business and pay nothing for local services.

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

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This is the result of small business rates relief, a concession intended to support small, independent traders, being applied under regulations to short-term let properties, according to an investigation by the Edinburgh Evening News.

It is believed the tax lost to the public purse may be much greater due to the sector being largely left to regulate itself.

If every Airbnb host renting out a whole property in Edinburgh qualified through the loophole, the potential liability to taxpayers for reimbursed business rates would be more than £14m.

In Edinburgh, there are more than 11,000 active Airbnb listings, with more than 7,000 whole properties listed.

The other 4,000 are rooms in houses and flats, and 1,700 properties are listed as short-term self-catering units on the business rates register.

Under 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, small businesses with a rateable value of £15,000 or under are given total relief from business rates.

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This means the vast majority of short-term lets in the city, which declare themselves as businesses pay no tax to the council.

Further breaks are available for those with more than one short-term let property.

Rules allow holiday-let owners to run up to 10 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 them around £5,000. Nor do they need a house in multiple occupation (HMO) licence, costing £600 per property.

A spokesman for Airbnb, which is based in San Francisco, said: “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 short-term lets are regulated appropriately.”