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

Section 7: Options Considered and Recommended

7.1 Options considered initially

This assessment considers two possible options in relation to introducing an exemption for the Highlands and Islands. These options are:

1. Do not introduce secondary legislation that amends the 2017 Act to make provision for an ADT Highlands and Islands exemption.

2. Introduce secondary legislation that amends the 2017 Act to make provision for an ADT Highlands and Islands exemption.

Sectors/Groups affected

The exemption will affect all airlines and other aircraft operators who, from 1 April 2027, carry passengers travelling in standard class, on aircraft which are not special category aircraft, on flights:

1. 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/or

2. 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).

ADT will be paid by airlines and other aircraft operators to Revenue Scotland, and so airlines and other aircraft operators will be the direct beneficiaries of the exemption.

Ticket prices will remain a commercial matter for airlines and other aircraft operators. The Scottish Government will have no role in setting ticket prices.

The Scottish Government estimates that in the 2025-26 financial year approximately 673,000 direct passengers were carried on flights which began at an airport in the Highlands and Islands region to a domestic UK airport, while approximately 230,000 direct passengers were carried from Edinburgh Airport, Glasgow International Airport, Glasgow Prestwick Airport, Aberdeen Airport and Dundee Airport to airports in the Highlands and Islands region.

Option 1 - Do not introduce secondary legislation that amends the 2017 Act to make provision for an ADT Highlands and Islands exemption.

Sectors and groups affected

Airlines and other aircraft operators.

Benefits

There are no discernible benefits to this option.

Stakeholders have engaged with the Scottish Government and Revenue Scotland in

good faith on policy development for the exemption in the period since the 2026-27 Scottish Budget. Not introducing this secondary legislation would therefore result in significant cost uncertainty for the sectors and groups affected.

Businesses and communities in the Highlands and Islands region already face higher costs and prices by virtue of their geographical challenges and generally sparse population centres. Applying a per passenger tax on the carriage of passengers on flights departing from Highlands and Islands airports, which have been APD exempt since 2001, would be expected to induce one or more of the following effects:

• airlines and other aircraft operators increasing fares for passengers;
• a reduction in passenger numbers, particularly among the most price sensitive markets;
• lower route profitability; and/or
• reduced service frequencies.

Costs

The Scottish Government understands that airlines and other aircraft operators typically begin advertising and selling passenger tickets up to eleven months in advance of scheduled departures. It is reasonable to expect that airlines and other aircraft operators have set 2027-28 ticket prices based on announced Scottish Government policy. In the event that the Scottish Government did not proceed with implementing the exemption, this would add unexpected route costs for airlines and aircraft operators after tickets have already been sold to passengers.

The imposition of tax on flights from the Highlands and Islands region for the first time since 2001 would be expected to raise costs for airlines and other aircraft operators and, assuming that costs are passed on to consumers, for passengers via increased ticket prices. This may weaken demand and profitability on air routes or undermine service viability in a region where aviation connectivity is vital.

Without the exemption, the carriage of passengers flying on economy tickets from Highlands and Islands airports to UK destinations would increase by £8.26 per passenger in 2027-28.

Option 2 - Introduce secondary legislation that amends the 2017 Act to make provision for an ADT Highlands and Islands exemption.

Sectors and groups affected

Airlines and other aircraft operators.

Benefits

Secondary legislation is required to ensure that the exemption is inserted into the 2017 Act and can be brought into force on 1 April 2027, alongside ADT becoming operational in Scotland. Regulations that make provision for the establishment of the exemption will provide greater certainty to taxpayers.

Introducing secondary legislation which clearly defines the exemption is anticipated to reduce ambiguity or misinterpretation and enable Revenue Scotland to assure compliance.

The exemption will help protect Highlands and Islands aviation connectivity by continuing to lower the cost of air travel in the region relative to a counterfactual scenario in which tax costs were incurred by airlines and other aircraft operators. Maintaining Highlands and Islands aviation connectivity via the exemption will continue to provide crucial connectivity for the people and businesses of the region by means of air services which can be operated by any commercial airline.

Air transportation is the only available means of transporting passengers or goods around the globe within a single day. Therefore, it is often considered a primary driver of national and international trade opportunities. In the case of the Highlands and Islands region, air transportation is often the only available means of transporting passengers or goods to and/or from the rest of the UK in a single day, making the continued affordability and provision of domestic Highlands and Islands flights central to the region’s trade opportunities, alongside the use of other modes of transport such as ferries.

The exemption is intended to safeguard regional air routes and connectivity from Highlands and Islands airports, but may also induce a small number of positive externalities. A positive externality occurs where the activities of a business affect third parties, but these third parties do not pay for the benefits they derive. The exemption can be expected to produce the following positive externalities, relative to a counterfactual scenario in which ADT were levied on the carriage of passengers on all flights departing from Highlands and Islands airports:

1. enabling Highlands and Islands businesses and growth sectors to be connected (via direct and connecting aviation services) to markets and to take advantage of national and international trade opportunities;

2. making the region more accessible and attractive to migrants, tourists, businesses and investors, and by helping to retain population; and

3. helping one of Europe’s most isolated communities to overcome its geographical and locational disadvantage and connect to the rest of the UK.

Costs

The Scottish Fiscal Commission (SFC) forecast that the exemption will forego approximately £7 million of revenue in 2027-28, rising to approximately £9 million by 2031-32. The cost of foregoing revenue from the carriage of passengers on flights from Highlands and Islands airports to UK airports will be partially offset by the collection of additional revenue from the carriage of passengers flying from airports in the Highlands and Islands to non-UK airports.

The SFC’s forecast, published on 25 August 2026, is set out below.

7.2 Recommendations/ preferred options

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:

1. 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

2. 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).

We are proceeding with this option on the basis that it will reduce the uncertainty for prospective taxpayers (airlines and other aircraft operators) and their customers (passengers) and make the transition between APD and ADT as smooth as possible for the businesses and stakeholders affected.

This option also reflects feedback from stakeholder engagement through the ‘Delivering Scotland’s Air Departure Tax’ consultation as well as broader stakeholder engagement. Additionally, this option will resolve the subsidy control issues which have previously prevented implementation of ADT.