The impending approval of the United Kingdom's first tourism tax could disturb hotel demand in a storied, successful market.
Last month, local lawmakers in Edinburgh approved a 5% surcharge to overnight accommodations in the Scottish capital for hotel and lodging accommodations made for July 24, 2026, and onward.
Edinburgh City Council on Jan. 24 voted to approve the tax, and immediately sent a letter to the minister of public finance of the Scottish Parliament. It's likely that Edinburgh's request will be granted as the Scottish government passed the Visitor Levy (Scotland) Bill in July 2024 that “aims to allow a visitor levy, a type of fee or tax, to be charged on overnight stays in some types of accommodation.”
Leon Thompson, executive director of UKHospitality Scotland, said he is worried extra taxation would only serve to make visitors' trips to Edinburgh more expensive and decrease their odds of returning.
“It’s now the job of the [Edinburgh City] Council to use these funds wisely to improve the capital’s attractiveness as a visitor destination and mitigate the impact of the levy on businesses,” Thompson said.
If approved, the upcoming tourism tax is a testament to the success of the city’s hotel sector, said Robert Holland, managing director for the United Kingdom and Ireland at Birmingham-based HotelPartner Revenue Management. But since its value-added/sales tax at 20% already is higher than most of its European competitors, any further cost to accommodations in Edinburgh could be a major disadvantage to the market in the future. In other words, higher costs might force tourists to look elsewhere.
“Edinburgh is a huge success as a tourism destination, with 17.5 million nights spent on accommodation in 2022. … Managing this influx has caused the city to reassess the accommodation offering in recent years,” Holland said. “What is critical is that any additional tax raised by the tourism sector must also go to benefit the sector, which should be at the heart of decision-making when the money raised is deployed. Then we can ensure that it continues to drive job creation and bolster economic growth across Edinburgh and Scotland.”
As a tourism market, Edinburgh's history spans millennia. The city is the center of Scottish politics and benefits from notable attractions such as Arthur’s Seat, Edinburgh Castle and the Palace of Holyroodhouse, the British monarch's Scotland residence. Edinburgh's population is just a few shy of 1 million residents.
Holland said Edinburgh is a truly diverse and dynamic market and a global destination for both leisure demand and corporate business.
“The city is renowned globally as a popular visitor destination, as home to two UNESCO World Heritage Sites, as well as hosting the annual Edinburgh International Festival and Edinburgh Festival Fringe. The tourism sector is supported by the city's strong connectivity, including air, rail and cruise ship links, which drives not only strong domestic demand, but international, too,” he said.
Edinburgh will also likely welcome a flood of visitors in August 2025 as it hosts several sold-out concerts in the reunion tour of Manchester rock band Oasis. Those shows will be played on Aug. 8-9 and Aug. 12 at the city's rugby stadium Murrayfield.
The performance of Edinburgh's hotels marketwide have been nothing short of electric, especially for a city of its size.
In 2024, Edinburgh's hotel occupancy reached 84.2%, up 2.1% year over year, according to CoStar hospitality data. Average daily rate rose 10.3% to £161.08 and revenue per available room increased 12.6% to £135.56. In 2023, Edinburgh's hotel occupancy rose 8.4% year over year to 82.4%, with ADR up 15.6% to £146.10 and RevPAR up 25.2% to £120.45.
Edinburgh is the fourth-largest financial center in Europe and an established technology hub stemming from its universities and investment from multinational firms such as Apple, Amazon and Microsoft, Holland said.
“Looking ahead, we see only growth. Recent increases in ADR are holding up despite rapidly expanding supply, which still leaves the Scottish capital with just over 11% of the rooms in London and only limited ability to grow significantly further because of its status as a UNESCO World Heritage Site,” Holland said.
Edinburgh welcomed several new hotels that opened in 2024. These include the Tynecastle Park Hotel, owned by Scottish Premiership soccer club Heart of Midlothian at their stadium, Tynecastle. There's also The Caledonian Edinburgh, Curio Collection by Hilton, dating from 1903 and a conversion from its former existence as the Waldorf-Astoria Edinburgh. Finally, from Red Carnation Hotels, the 100 Princes Street sits in a building that has a view of Edinburgh Castle and was formerly occupied by charitable organization Royal Over-Seas League.
Last month, The Resident Edinburgh opened as a conversion of an office of His Majesty’s Revenue & Customs. Later this year, another hotel scheduled to open is The Hoxton Edinburgh.