Air Departure Tax Highlands and Islands Exemption: business and regulatory impact assessment

Executive summary

This Business and Regulatory Impact Assessment (BRIA) follows on from the 'Delivering Scotland's Air Departure Tax' consultation which sought evidence and views from stakeholders on the Scottish Government's approach to protecting Highlands and Islands aviation connectivity as Scotland transitions from Air Passenger Duty (APD) to Air Departure Tax (ADT) from 1 April 2027.

The consultation ran from 29 January until 26 March 2026 and was accompanied by a programme of stakeholder engagement.

Following careful consideration of the evidence and feedback received, the Scottish Government will proceed with laying draft secondary legislation amending the Air Departure Tax (Scotland) Act 2017 to introduce an ADT Highlands and Islands exemption and make other necessary amendments to the 2017 Act to enable the exemption to operate as intended. Subject to the relevant secondary legislation successfully completing the Parliamentary process, the ADT Highlands and Islands exemption will come into operation on 1 April 2027, which is the date on which ADT will come into effect in Scotland. The ADT Highlands and Islands exemption will apply in relation to the carriage of passengers travelling in standard class on aircraft which are not special category aircraft on flights:

i. which begin at an airport in the Highlands and Islands region and where the passenger’s final destination is an airport in the UK (including passengers travelling on connected flights where the first connected flight departs from an airport in the Highlands and Islands region and the passenger’s final destination is an airport in the UK); and

ii. which begin at any Scottish airport and where the passenger’s final destination is an airport in the Highlands and Islands region (including passengers travelling on connected flights where the first connected flight departs from any Scottish airport and the passenger’s final destination is an airport in the Highlands and Islands region).

Objective

The exemption’s objective is to protect domestic aviation connectivity within the Highlands and Islands region. This is an equity objective which seeks to reduce unequal or unfair outcomes between different geographic areas. The exemption will help maintain domestic aviation connectivity for the Highlands and Islands region by reducing the cost of aviation services relative to a counterfactual scenario in which tax costs were incurred by the airline or other aircraft operator and potentially passed on to passengers via ticket pricing.

Protecting these services from tax costs is intended to, in turn, protect the provision of aviation services between the Highlands and Islands region and domestic destinations for passengers by helping to ensure the routes are commercially viable. A continued tax exemption is necessitated by the continued importance of air transport to the daily life of people and businesses in the islands and rural regions.

The Scottish Government supports international route development on an ‘airport-neutral’ basis and does not interfere with competition, leaving the decision on where to locate services entirely with the commercial airline or other aircraft operator. The Scottish Government is restricting the exemption so that, in relation to flights which begin at an airport in the Highlands and Islands region, it only applies to the carriage of passengers on direct and connected flights where the passenger’s final destination is a UK airport and will not apply to the carriage of direct and connecting passengers whose final destination is a non-UK airport. This is on the basis that continuing to exempt the carriage of passengers travelling on flights departing from airports in the Highlands and Islands to a final destination which is an international airport may risk incentivising the provision of international air services in airports in the Highlands and Islands at the expense of other airports in Scotland.

Sectors affected

The ADT Highlands and Islands exemption is expected to:

• directly impact on airlines and other aircraft operators which operate Highlands and Islands passenger aviation services, and;
• indirectly impact communities and businesses within the Highlands and Islands region which utilise passenger aviation services.

Anticipated impacts

Administration of the ADT Highlands and Islands exemption

The Scottish Government would expect the administration costs involved in airlines and other aircraft operators reporting the exemption to be broadly similar to those already in place in relation to the existing Highlands and Islands exemption within the current UK-wide Air Passenger Duty (APD) regime. Although the exact format of the tax return will be set out by Revenue Scotland in due course and may differ from that of APD, the Scottish Government expects that any tax return would draw on data that taxpayers (airlines and other aircraft operators) have readily available and is already required to make APD tax returns, including to support the reporting of the existing APD exemption.

Extending the exemption to the carriage of qualifying passengers on flights from Scottish airports to airports in the Highlands and Islands region

From 1 April 2027, the Scottish Government will extend the exemption to include the carriage of passengers on flights from all Scottish airports to airports in the Highlands and Islands region providing that, in each case, the passenger is travelling in standard class on all flights covered by the agreement for carriage and that the aircraft on which the passenger is carried on each flight not a special category aircraft. Under UK APD, the carriage of passengers on these routes (e.g. Glasgow-Benbecula) does not fall within the scope of the APD Highlands and Islands exemption and therefore (where no other APD exemptions apply) is taxable and airlines and other aircraft operators in 2026-27 currently incur a tax liability of £8 per standard class passenger.

The Scottish Government's decision to extend the exemption to the carriage of passengers from Scottish airports to airports in the Highlands and Islands region (where the conditions to qualify for the exemption (mentioned above) are met) will reduce costs for impacted airlines and other aircraft operators, in relation to the carriage of affected passengers.

Where the conditions to qualify for the exemption (mentioned above) are met, the carriage of passengers on existing services from Aberdeen, Glasgow, Edinburgh and Dundee to airports in the Highlands and Islands region will be exempt from ADT, as will any new routes established from these or other airports in Scotland to airports in the Highlands and Islands region. This will have the effect of reducing costs for the airline or other aircraft operator by £8.26 per passenger for standard class travel in the financial year 2027-28, relative to a counterfactual scenario in which the carriage of these passengers continued to incur tax for the airline or other aircraft operator.

Bands:

Domestic

• Standard rate: £8.26

The Scottish Government understands that in 2025-26 approximately 230,000 passengers were carried on approximately 8,300 flights from Aberdeen, Glasgow, Edinburgh or Dundee airports to airports in the Highlands and Islands region.^[1] The Scottish Government additionally understands that all of these passengers were carried on standard class tickets.

Limiting the exemption to the carriage of passengers whose final destination is a UK airport

As set out in the consultation and consultation analysis, the Scottish Government has concluded that carrying over the international aspect of the APD Highlands and Islands exemption into the new ADT exemption goes beyond the stated policy objective of the exemption and may not comply with the Subsidy Control Act 2022. Therefore, in relation to flights which begin at an airport in the Highlands and Islands region, the ADT exemption will not apply to the carriage of passengers on direct or connected flights beginning at an airport in the Highlands and Islands region where the passenger’s final destination is an airport outside the UK.

In practice, this will increase costs for airlines and aircraft operators, relative to a counterfactual scenario in which the APD Highlands and Islands exemption policy were reproduced within the ADT regime and continued to apply in Scotland (unless amended or revoked). The Scottish Government’s understanding is that airlines and aircraft operators ordinarily pass the cost of tax through to the consumer (air passengers) via ticket prices, although this is a commercial decision for the airline. The Scottish Government will have no role in setting ticket prices.

The table below sets out which ADT rates will be incurred by airlines and aircraft operators for the carriage of passengers from a Highlands and Islands airport to an international final destination in the 2027-28 financial year. Domestic rates are not applicable as the carriage of passengers from airports in the Highlands and Islands region to domestic UK final destinations will be exempt from ADT where the conditions to qualify for the exemption (mentioned above) are met. The Special rate of ADT will apply to the carriage of passengers on private or business jet flights.

For illustrative purposes, the carriage of a passenger flying outbound direct on the KLM service from Inverness Airport to Amsterdam Schiphol Airport will incur either £15.49 or £33.04 depending on the passenger’s class of travel (standard class or premium). The Scottish Government estimates that approximately 45,000 passengers flew outbound from Inverness airport to Amsterdam Schiphol airport in the 2025-26 financial year on 589 scheduled flights.^[2]

Removing the exemption from the carriage of passengers on private jet flights

Including the carriage of passengers on private jet flights within the scope of the exemption would go beyond the exemption’s stated policy objective of protecting Highlands and Islands aviation connectivity, as exempting the carriage of private jet passengers would have no impact on the operational costs of commercial aviation services to and from airports in the Highlands and Islands region.

Private aircraft generally carry far fewer passengers than commercial flights and emit more carbon emissions per head. Therefore, the exemption will only apply to the carriage of passengers on commercial flights, and the Scottish Government will lay further secondary legislation before the Scottish Parliament to ensure that the exemption will not extend to the carriage of passengers travelling on private jet flights.

The following additional costs will be incurred by private jet operators from 1 April 2027 for the carriage of each passenger on a private jet flight from the Highlands and Islands region.

For example, the carriage of ten passengers on a private jet flight from an airport in the Highlands and Islands to North America (Band B) will incur an ADT cost of £11,327.60 in financial year 2027-28.

Enforcement

Subject to the relevant secondary legislation successfully completing the Parliamentary process, the ADT Highlands and Islands exemption will come into effect on 1 April 2027, which is the day on which ADT comes into operation in Scotland. Airlines and other aircraft operators will be able to report the exemption when filing ADT tax returns with Revenue Scotland in respect of flights departing on and after 1 April 2027.

Recommendations

Following careful consideration of the evidence and feedback received, the Scottish Government will proceed with laying draft secondary legislation amending the Air Departure Tax (Scotland) Act 2017 to introduce an ADT Highlands and Islands exemption and make other necessary amendments to the 2017 Act to enable the exemption to operate as intended. Subject to the relevant secondary legislation successfully completing the Parliamentary process, the ADT Highlands and Islands exemption will come into operation on 1 April 2027, which is the date on which ADT will come into effect in Scotland. The ADT Highlands and Islands exemption will apply in relation to the carriage of passengers travelling in standard class on aircraft which are not special category aircraft on flights:-

i. begin at an airport in the Highlands and Islands region and where the passenger’s final destination is an airport in the UK (including passengers travelling on connected flights where the first connected flight departs from an airport in the Highlands and Islands region and the passenger’s final destination is an airport in the UK); and

ii. which begin at any Scottish airport and where the passenger’s final destination is an airport in the Highlands and Islands region (including passengers travelling on connected flights where the first connected flight departs from any Scottish airport and the passenger’s final destination is an airport in the Highlands and Islands region).