Will Scotland’s visitor levy help or hinder the tourism and hospitality sector?

Scotland is an increasingly popular holiday destination, attracting millions of visitors worldwide. Often hailed as one of the most beautiful countries in the world, Scotland’s rich culture, fine whisky, and quality produce make it a top choice for travellers. In the first half of 2024 alone, Scotland had nearly two million international visitors, an increase of 14% from the same period in 2023, and a 46% rise since 2019.

To capitalise on the growing tourism sector, the Scottish Government introduced the Visitor Levy (Scotland) Act 2024 (the “2024 Act”) which effectively provided local authorities with the opportunity to bring in local “tourist taxes” at their own discretion. The City of Edinburgh Council will be the first local authority to implement the levy, applying a 5% charge on overnight stays, capped at five consecutive nights, starting in July 2026. The Federation of Small Businesses has found that two-thirds of councils are looking into implementing the levy. These local authorities have the flexibility to set different percentages and durations, for instance, Aberdeen City Council is considering a 7% levy. While this new levy is unlikely to deter visitors from major Scottish destinations, such as Edinburgh, Glasgow, and the Highlands and Islands, its impact on less visited areas remains uncertain.

The implementation of this levy in Edinburgh is expected to generate tens of millions of pounds to enhance and sustain the city. But where will this money go? The guidance from VisitScotland emphasises that local authorities should align the objectives of their visitor levy schemes with their local tourism strategies and related plans. Therefore, the use of the visitor levy can look different for everyone. Section 19 of the 2024 Act provides that a local authority operating a visitor levy scheme must use proceeds of the scheme to (1) facilitate the achievement of the scheme’s objectives (the authority has a duty under the 2024 Act, as part of their consultation process when considering a possible levy, to publicise a statement setting out the objectives of the levy) and (2) if not needed to achieve the scheme’s objectives, to develop, support and sustain facilities and services substantially for and used by visitors.

So, will (or can) part of this levy revenue be invested in local infrastructure and housing? After being cut in 2024/25, the Affordable Housing Supply Programme saw an increase in the 2025/26 Budget, but the prior funding gap remains a concern. The guidance on the visitor levy and the terms of the 2024 Act do not explicitly categorise housing as an appropriate or inappropriate use, but, as referred to above, it does highlight the importance of a clear connection between levy expenditure and the enhancement of visitor-related services and infrastructure. Given this, the use of levy funds for housing could be considered a “grey area”. It could be argued that spending some of the levy funds on provision of low cost affordable housing may help attract potential staff, particularly in areas where house prices/rents are high (like Edinburgh or Skye) or where housing stock is low (for example, in more rural areas of Scotland), thus dealing with one of the current key problems facing many tourism businesses across the country.

The introduction of a visitor levy in Scotland comes with its own unique set of benefits and challenges. In major tourist destinations like Edinburgh, the impact on visitor numbers is expected to be minimal. Cities across Europe, including Paris, Lisbon, and Rome, have already implemented similar levies with little pushback or decline in tourism. However, while Scotland’s major cities and tourist destinations may remain largely unaffected, smaller towns and rural areas could see a different outcome. The additional cost could discourage visitors in less tourist heavy areas and even reduce overall spending, impacting adversely on local businesses and economies.

Large hotel chains are well-equipped to handle the financial and administrative aspects of Scotland’s new visitor levy. However, smaller operators, who are already struggling with Brexit related issues and rising costs, may face significant challenges. The Scottish Tourism Alliance has expressed concerns about the complexity of the current charging model, noting that small businesses might struggle due to less sophisticated IT infrastructure. This disparity could lead to increased administrative burdens and financial strain for smaller accommodation providers. UKHospitality Scotland has also raised concerns that the visitor levy could harm businesses by adding extra costs, potentially affecting the competitiveness of Scotland’s hospitality and tourism sector.

A critical factor will be how the revenue from the levy is reinvested. As long as funds are used effectively to improve tourism infrastructure and services, the levy should help sustain long-term growth. However, if businesses feel the burden of collecting and accounting for the levy to the local authority outweighs the benefits, or if funds are not transparently reinvested into tourism, there is a worry that the levy could do more harm than good in certain areas.

There is no one-size-fits-all approach when it comes to the visitor levy. While similar levies are common internationally, Scotland’s diverse tourism landscape, from bustling cities like Edinburgh to remote rural communities, means that a tailored approach is essential. The key question remains: will this levy ultimately strengthen Scottish tourism and infrastructure in the long run, or will it introduce new challenges for businesses, visitors, and residents alike? The answer will depend not only on how much revenue is raised but also on whether that revenue is reinvested effectively to support sustainable tourism, improve local services, and ensure that businesses, both large and small, can continue to thrive in Scotland’s evolving tourism sector.