Air Departure Tax Highlands and Islands Exemption: island communities impact assessment

Step one – Develop a clear understanding of your objectives

Background

Since 1 April 2001 the carriage of passengers on flights departing from airports in the Highlands and Islands region have been subject to a tax exemption from UK Air Passenger Duty (APD) in recognition of the reliance on air transport in the only UK region with a population density of fewer than 12.5 people per square km.

Passengers travelling on flights departing from an airport in the Highlands and Islands region (including passengers travelling to international destinations via direct or connecting flights) are not chargeable passengers for the purposes of APD. Airlines and aircraft operators are therefore not liable to pay APD in respect of these passengers. Inbound passengers flying to airports in the Highlands and Islands region from other UK airports are currently chargeable passengers under APD.

From 1 April 2027, Air Departure Tax (ADT) will replace APD in Scotland. ADT will apply to the carriage of passengers on flights departing from Scottish airports. It will be paid by airlines and aircraft operators and will be chargeable on a per passenger basis. ADT will follow a band structure with rates varying by destination and by class of travel. ADT rates for the financial year 2027-28 are set out in Table 1 below.

The Air Departure Tax (Scotland) Act 2017 (“the Act”) received Royal Assent on 25 July 2017. The original planned introduction date of ADT was 1 April 2018. However, the Scottish Government identified concerns around the existing APD Highlands and Islands exemption’s compliance with European Commission State Aid rules (which applied to the UK given the UK was still an EU Member State at that time), and deferred the introduction of the tax until a resolution could be identified. Following the UK’s exit from the European Union, the Subsidy Control Act 2022 replaced European Commission State Aid rules within the UK from 4 January 2023.

The Scottish Government has set an introduction date of 1 April 2027 for ADT. ADT will include a continued tax exemption for the carriage of certain passengers on Highlands and Islands flights. However, the Scottish Government has designed a new ADT Highlands and Islands exemption (“the exemption”) that differs from the existing exemption under APD to ensure compliance with the Subsidy Control Act 2022.

From 1 April 2027, the exemption will apply 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 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

ii. which begin at any Scottish airport and where the 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).

These changes are set out in detail in the 'Air Departure Tax: consultation analysis report'.^[1]

What are the objectives of the policy, strategy or service?

The exemption’s objective is to protect Highlands and Islands transport connectivity.

This is an equity objective, as it seeks to reduce unequal or unfair outcomes between different geographic areas. The exemption will help maintain Highlands and Islands aviation connectivity by reducing the cost of Highlands and Islands air travel 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.

While the exemption will apply to certain flights to and from airports in the Highland and Islands region, the Scottish Government recognises that island communities are likely to experience even greater dependency on aviation services than many Highland communities because islands residents often have no road or rail alternative and may already depend upon ferry or aviation connectivity as part of a wider journey.

The Scottish Government contends that there is a need for a continued tax exemption for Highlands and Islands passengers in order to protect Highlands and Islands aviation connectivity by reducing operating costs relative to a counterfactual scenario in which Highlands and Islands passengers were chargeable.

Protecting these services from tax costs is intended to, in turn, protect the provision of aviation services between the Highlands and Islands region and other domestic destinations 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 islands and rural regions.

Airlines and other aircraft operators carrying passengers who qualify for the exemption on certain flights to and from airports in the Highlands and Islands will not incur tax costs which the same firm or competitor firms carrying passengers on routes outside of the Highlands and Islands must either absorb or pass on to their passengers via ticket pricing.

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 air carrier. 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 direct and connected flights where the passenger’s final destination is a UK airport and will not apply to 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.

Do you need to consult?

A consultation has already been carried out. Following the 2026-27 Scottish Budget in January 2026, the Scottish Government ran a public consultation titled ‘Delivering Scotland's Air Departure Tax’.^[2] This sought views and evidence on the proposed ADT Highlands and Islands exemption, as well as broader ADT policy considerations. The consultation ran for eight weeks, from 29 January to 26 March 2026, closing shortly prior to the dissolution of the Scottish Parliament prior to the 2026 Scottish Parliament election.

The ‘Delivering Scotland’s Air Departure Tax’ consultation sought comments on the exemption to inform the development of the secondary legislation to be subsequently laid before the Scottish Parliament. The consultation invited responses to a range of open and closed questions covering the proposed exemption and future ADT rates for private jet passengers, as well as operational and future policy considerations and impacts.

Prior to the launch of the consultation, the Scottish Government engaged with Highlands and Islands aviation stakeholders directly on the proposed exemption. Notification of the consultation was issued to a list of organisations previously identified as having an interest in ADT more broadly, as well as Highlands and Islands aviation connectivity specifically.

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.

How are islands identified for the purpose of the policy, strategy or service?

Passengers carried on certain flights beginning or ending at an airport in a designated area of Scotland and who meet other specified criteria (outlined in the "Background” section above) will be exempt from ADT. The designated areas include islands as well as areas of the Highlands, and are defined in the secondary legislation (inserting a new section 7A into the 2017 Act) as:

(a) the local authority areas of Highland, Na h-Eileanan an Iar,^[3] Orkney Islands, Shetland Islands and that part of Argyll and Bute which is the area of the former Argyll and Bute District Council and the islands of Arran, Great Cumbrae and Little Cumbrae, and

(b) in the local authority area of Moray, the parishes of Aberlour, Cabrach, Dallas, Dyke, Edinkillie, Forres, Inveravon, Kinloss, Kirkmichael, Knockando, Mortlach, Rafford and Rothes.

What are the intended impacts/outcomes and how do these potentially differ in the islands?

The intended impacts and outcomes of the exemption are that domestic aviation connectivity in the Highlands and Islands will be maintained and bolstered, with the exemption differing from the APD Highlands and Islands exemption in that the ADT exemption will apply to the carriage of passengers on flights from any Scottish airport where:- the passenger’s final destination is an airport in the Highlands and Islands; the passenger is travelling in standard class; and the passenger is not being carried on a special category aircraft.

The impact on the islands is considered to be beneficial as the exemption makes the flights providing crucial connectivity links more financially viable. In doing so, the exemption helps to protect transport provision in the islands and safeguard services that can operate in weather conditions that would be prohibitive for ferry services.

Is the policy, strategy or service new?

Yes, the exemption is new in that ADT will come into operation on 1 April 2027. All ADT exemptions – including the ADT Highlands and Islands exemption – are therefore new and will be administered by Revenue Scotland for the first time.

While the exemption is replacing an existing APD Highlands and Islands exemption which has been in place since April 2001, the exemption from ADT of the carriage of passengers on flights from any Scottish airport to airports in the Highlands and Islands region (providing that the other conditions to qualify for the exemption are met) is new.

Additionally, the restriction of the exemption to the carriage of passengers with a domestic final destination is new and does not feature in the existing APD Highlands and Islands exemption.