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

Section 2: Engagement and information gathering

Following the 2026-27 Scottish Budget in January 2026, the Scottish Government ran a public consultation ‘Delivering Scotland's Air Departure Tax’ seeking views and evidence on the proposed ADT Highlands and Islands exemption as well as broader ADT policy. The consultation ran for eight weeks, from 29 January to 26 March 2026, closing shortly prior to the dissolution of the Scottish Parliament in advance of the 2026 Scottish Parliament election.

This formal consultation was also supplemented with stakeholder engagement at both the official and ministerial level, including a Highlands and Islands ministerial roundtable chaired by the then Cabinet Secretary for Transport to discuss the Scottish Government's proposed ADT Highlands and Islands exemption. A further roundtable was also held with representatives from the aviation sector, which was chaired by the then Minister for Public Finance.

The ADT Expert Advisory Group (EAG) was set up in March 2026 to support the rollout of ADT and shape future policy and legislation for the tax. The EAG is composed of members from the aviation, tourism and business sectors, as well as environmental non-government organisations and regional bodies. It acts as a sounding board, drawing on a wide range of subject matter expertise and perspectives. Its remit includes providing expert advice and scrutiny of potential ADT policy options, as well as identifying and helping to resolve any unintended consequences or adverse impacts that may arise. Membership is expected to evolve over time to reflect the needs of ongoing discussions and the expertise required at each stage

2.1 Business/Third Sector engagement

As the ADT Highlands and Islands exemption is most relevant to businesses who will be able to report the tax exemption (i.e. airlines and other aircraft operators), business engagement has been a crucial component of policy development.

Airlines and other aircraft operators, who will be ADT taxpayers and who may report the exemption on eligible routes following ADT coming into operation on 1 April 2027, are represented on the EAG.

The Scottish Government has engaged with affected businesses since the announcement at the 2026-27 Scottish Budget of the introduction date for ADT. This has provided valuable insights from the aviation sector to enable a full discussion on the technical and financial implications of the implementation of ADT on businesses. Other sectors, such as tourism, have also provided insights into the impacts ADT policy can have in benefiting their industry.

2.2 Internal SG Engagement

The Tax Directorate within the Scottish Government has a network of stakeholder

organisations with an interest in policies relating to tax, aviation and rural affairs. Scottish Government stakeholders with a policy interest in proposals are contacted in respect of these proposals and consultation documents are made available to these bodies prior to publication. This includes direct contact and discussion with the following during the development phase of the policy and consultation:

• Revenue Scotland
• Transport Scotland

2.3 UK/ Devolved Administrations

Although policy for ADT and APD are the responsibility of the Scottish Government

and UK Government, respectively, both Governments are working collaboratively to support the transition from APD to ADT in Scotland from 1 April 2027.

2.4 Wider Public Sector

Five public bodies responded to the ‘Delivering Scotland’s Air Departure Tax’ consultation.

These respondents agreed that the Highlands and Islands region faces unique challenges that justify the need for an ADT Highlands and Islands exemption to support intra-Scottish and domestic connectivity.

2.5 Other Key Stakeholder

Not applicable.

2.6 Public consultation

Impact on Highlands and Islands economy

Many respondents to the consultation emphasised the importance of the proposed Highlands and Islands exemption in protecting and/or supporting the economy of the region and the Scottish economy more broadly, particularly in relation to the tourism industry. Several respondents raised the point that businesses operating in the Highlands and Islands experience unique challenges due to the geography and sparse population of the region. These include a limited local labour market, relatively low wages alongside a higher cost of living, additional costs for the transport and provision of goods and fewer opportunities to engage with other businesses, at both local and international levels. Multiple respondents stated that the exemption supports economic growth in the region by supporting the connectivity that enables Highlands and Islands businesses to participate in regional, Scottish and international markets.

Many respondents also highlighted the positive impact of the proposed exemption in attracting tourists and supporting the regional tourism sector. Respondents emphasised that many small hospitality and tourism businesses rely on aviation connectivity bringing tourists into the region.

However, several respondents expressed their concerns regarding the financial impact that the removal of the international component (which is present in the current APD Highlands and Islands exemption) may have on airlines that run international routes. British Airways and KLM were highlighted as airlines most likely to reconsider route viability where increased costs reduce profit margins. Concerns were also raised on the removal of the exemption for connecting passengers with an international final destination and the risk of demand leakage to non-Highlands and Islands airports for the first leg of overseas routes.

The Scottish Government recognises that the proposed Highlands and Islands exemption is expected to impact airline and other aircraft operators’ costs for the carriage of passengers on flights departing from airports in the Highlands and Islands, where passengers’ final destination is a non-UK airport.

Market Distortion and the Inclusion of Inverness Airport

The most common reason for disagreement with the proposed Highlands and Islands exemption was that it may cause market distortion and impact competition between Scottish airports. Multiple respondents raised that Inverness Airport should not be included in the proposed exemption. Two respondents suggested that Inverness Airport is not acutely affected by the geography of the Highlands and Islands regions and has well-developed connectivity as train and coach services to Scotland’s Central Belt are available. The respondents were concerned that including Inverness Airport in the exemption could lead to an unfair tax advantage for Inverness Airport that may affect passenger choices and airlines’ decisions on where to establish routes. The respondents emphasised their view that a more targeted Highlands and Islands exemption would support connectivity for the Islands and more sparsely populated parts of the Highlands while ensuring airlines’ decisions are guided by customer demand instead of tax incentives.

The Scottish Government acknowledges the concerns raised by some respondents that Inverness Airport is closer to central Scotland than other Highlands and Islands airports. However, Inverness Airport is the largest airport in the Highlands and Islands region, serving as the regional hub for Highlands and Islands passengers. Respondents have highlighted that the catchment area of Inverness Airport serves a region where drive times to access Inverness airport can exceed 2-3 hours (with public transport options often requiring significantly longer), which is longer than drive times to other Scottish airports outside of the Highlands and Islands. Air transportation is the only available means of transporting passengers or goods to and from the rest of the UK in a single day. Ensuring the continued affordability and provision of Highlands and Islands aviation services to and from the rest of the UK is central to Highlands and Islands trade opportunities.

The position of the Scottish Government is that there is a need for a continued tax exemption for the carriage of passengers on flights from airports in the Highlands and Islands (including Inverness Airport) to other airports in Scotland and airports in the rest of the UK in order to support the provision of such aviation services in a region which experiences significantly greater geographical challenges and journey times than any other part of the UK.

Commercial route sustainability and development

Multiple respondents noted that the proposed expansion of the exemption in respect of flights departing from any Scottish airport carrying a passenger whose final destination is an airport in the Highlands and Island region supports current route viability, which is particularly important in the Highlands and Islands region due to thin margins for many routes. If the expanded exemption were to support lower fares, it was suggested that this could in turn stimulate demand and help to sustain those routes.

Exclusion of private jet passengers from the ADT Highlands and Islands exemption

A small number of respondents disagreed with the Scottish Government's proposal to exclude the carriage of private jet passengers from the scope of the ADT Highlands and Islands exemption. Respondents cited the economic benefits that high-net-worth users of private jets bring to the Scottish economy through tourism and business. Respondents expressed the view that excluding private jets from the Highlands and Islands exemption could cause demand leakage to other countries and lose their economic contributions to Scotland.

The Scottish Government recognises that private jets may also be used for a range of purposes, including humanitarian and authorised emergency medical service flights. These specific operations are exempt from ADT. Including the carriage of passengers on private jet flights within the exemption would go beyond the exemption’s stated policy objective of protecting Highlands and Islands aviation connectivity. The Scottish Government also understands that 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 who are travelling on a standard class ticket on all flights covered by the agreement for carriage and will not extend to the carriage of passengers travelling on private jet flights. The Scottish Government intends to lay further secondary legislation before the Scottish Parliament in order to make the necessary amendments to the 2017 Act to ensure that the carriage of passengers travelling on private jet flights is excluded from the scope of the exemption.