The UK government made a surprise announcement late Friday (the ideal time to release bad news) involving tax-free sales.

Tourists traveling to the UK and buying goods in the country are no longer eligible for tax refunds. There will also be no tax-free shopping at air or cruise ports come January 1, 2021.

Financial Times was reporting that it may have a significant impact on luxury good sales in the UK:

The New West End Company said that, based on its calculations, the move would turn a potential £2.1bn tax-free shopping bonus from the UK’s departure from the EU into a £3.5bn loss of tax-free sales.

“This is a £5.6bn hit on the UK economy even before accounting for the negative knock-on effect on wider international tourism spending, at a time when retail and tourism across the UK are already reeling,” it said.

“This decision has massive negative implications for Britain’s tourism industry, hitting hotels, restaurants and cultural attractions across the whole of the UK as high-spending tourists instead choose to go to Paris, Rome or indeed any European country other than the UK.”

Here’s the announcement from the HM Treasury:

British passengers travelling to EU countries will be able to take advantage of duty-free shopping from January 2021, bringing our approach to the EU in line with the rest of the world.

This means that passengers will be able to buy duty-free alcohol and tobacco products, where available, in British ports, airports, and international train stations, and aboard ships, trains and planes.

This follows a consultation with industry on our approach to taxing goods carried across borders for personal use from January 2021, as the end of the transition period brings with it powers to set our own rules in this area.

The amount that passengers can bring back with them from non-EU Countries will also be significantly increased, and extended to EU countries, providing one of the most generous allowances anywhere in the world.

This means that passengers coming to Britain will be able to bring back, for example, three crates of beer, two case of still wine and one case of sparkling wine to GB without paying UK duties.

Tax-free sales

We are also ending tax-free sales in airports of goods such as electronics and clothing for passengers travelling to non-EU countries, following concerns that the tax-concession is not always passed on to consumers in the airport. In some instances these tax-free goods are brought back into the country by UK residents, putting high street retailers at a disadvantage.

VAT Retail Export Scheme

As part of these changes, VAT refunds for overseas visitors in British shops will be removed. Overseas visitors will still be able to buy items VAT-free in store and have them sent direct to their overseas addresses, while the costly system of claiming VAT refunds on items they take home in their luggage will be ended.

Further information

The post-transition passengers VAT and excise consultation was launched at Spring Budget 2020 and closed in May.

UK excise duty will no longer be due on alcohol and tobacco bought when leaving GB. For example, alcohol purchased duty-free on the way to the EU could be up to:

  • £2.23 cheaper for a 75cl bottle of wine.
  • £2.86 cheaper for a 75cl bottle of Champagne or Prosecco.
  • £2.28 cheaper for six 50cl cans of 4% ABV beer.
  • £11.50 cheaper for a 1l bottle of 40% ABV spirits.

New GB inbound personal allowances specified below. For example, someone will be able to bring three crates of beer, two cases of still wine and one case of sparkling wine to GB without paying UK duties.

Alcohol

  • 42 litres of beer
  • 18 litres of still wine
  • 4 litres of spirits OR 9 litres of sparkling wine, fortified wine or any alcoholic beverage less than 22% ABV

Tobacco

  • 200 cigarettes OR
  • 100 cigarillos OR
  • 50 cigars OR
  • 250g tobacco OR
  • 200 sticks of tobacco for heating
  • or any proportional combination of the above

Any other goods

  • £390 or £270 if travelling by private plane or boat

The beer allowance of 42 litres will equate to three crates of 568ml (pint) cans, the maximum unit per can that beer is sold in. If passengers prefer to buy 330ml bottles of beer this would equate to five crates.

Duty free, personal allowance and the VAT Retail Export Scheme changes will apply in England, Wales and Scotland.

Conclusion

It seems that the UK government is trying to do whatever is at its disposal to make the country as inhospitable for foreign visitors as possible.

Tax-free shopping of luxury goods is a significant draw for visitors from Asian nations, and other European countries continue to offer this.

I rarely claim back the tax unless in Australia, where the process is the most straightforward I have seen, and you get the entire amount back (no handling fees like on schemes operated by outside companies).

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