March 28, 2014

The United Kingdom’s (U.K.’s) Finance Minister George Osborne announced reforms to the U.K. air passenger duty (APD) on March 19 when he presented his proposed budget for 2014. The reforms will increase the departure tax on most business aircraft flights from the U.K. to the United States, but will likely reduce the rate for longer flights from the U.K. to Asia, Latin America and Australia.

The APD, which has been in place for airlines since 1994 and was first applied to business aircraft in 2013, is charged per passenger and has always varied based on the flight’s destination and the seat configuration of the aircraft. For several years, the scheme grouped countries into four “geographical bands,” depending on the distance from London to the destination territory’s capital city (band A being the nearest; band D the farthest).

Designed to make the tax less onerous for long haul-flights, Osborne’s reforms will eliminate bands C and D, effective April 1, 2015.

“This departure tax, one of the heaviest in the world, has always been complex, and the geographical band structure was seen to be unduly penalizing passengers on longer flights,” said Scott O’Brien, NBAA’s senior manager for finance and tax policy. “It’s not as if longer flights impose higher costs on the U.K.’s transportation infrastructure.”

With the elimination of bands C and D, all flights to territories with a capital city more than 2,000 miles from London will be taxed at the same rate (the band B distance), varying only by the size of the airplane and its seat configuration. For passengers in a seat with a pitch of 40 inches or less (as in most airline economy-class seats), the reduced rate applies; for any seat with a pitch more than 40 inches, the standard rate applies; for aircraft weighing more than 44,092 pounds and which have fewer than 19 seats, the higher rate applies.

All rates will still rise for inflation on April 1, 2014 by about 3 percent, and again in 2015.

Unfortunately for many business aircraft operators, Osborne’s proposal will raise the higher rate from four times the reduced rate (what it has been previously), to six times the reduced rate. For example, the per-passenger duty from the U.K. to the United States for a Gulfstream 450, Falcon 900 or Global Express 5000 would be £426, from £276 in 2014 – an increase to roughly $774 from $458.

However, for lighter aircraft (or larger aircraft with at least 19 seats), rates to the United States will only rise for inflation, and rates to Asia, Latin America and Australia will actually drop.

When the U.K. government first proposed extending the departure tax to business aircraft in 2011, industry groups there, including the European Business Aviation Association, the British Business & General Aviation Association and the British Helicopter Association – along with NBAA – strongly opposed it, successfully delaying the implementation for two years, and securing exemptions for helicopters and aircraft weighing less than 12,566 pounds.

“Industry groups fought against extending this tax to business aviation for two years, and the exemptions for helicopters and light aircraft will remain in place,” said O’Brien. “NBAA will keep working with our partners in Europe to explain the value of business aviation and prevent the spread of additional taxes like the APD.”

Learn more about the APD changes.