Iain Masterton: Tax-efficient promotion of tourism through Scottish paradores

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While the ravaged tourism industry in Scotland struggles to weather the effects of Covid-19, could the prospect of transforming some of our historic properties into high-end hotels help the industry and provide an economic boost post-pandemic?

Scottish tourism was booming prior to the lockdown, with tourists in 2018 spending more than £ 7 billion here. The industry employs about 205,000 people and will be a key factor in the post-pandemic economic development of Scotland.

At the recent SNP meeting, as part of a campaign to improve the countryside, the conversion of buildings such as churches, castles and stately homes into state-run tourist attractions was addressed. The idea is based on the “paradores,” of Spain, which created £ 230 million in revenue in 2019, with revenues directly going into state coffers.

Although there are variations in the structure of our tourism sector compared to Spain, it is certainly worth further considering the definition of Scottish “paradores” First, the conversion of non-residential buildings into income-generating lodging establishments provides benefits from a tax point of view, as the 5 percent VAT rate will benefit from the expense of the construction work. The registration of VAT by the lodging operator can also allow the recovery of VAT and further contribute to financial viability.

It is debatable if the government is better positioned to operate a surplus tourism sector, although an independent company will likely be created to manage a network of Scottish Paradores effectively.

A further concern is where public money should be spent in these innovations by the Scottish government. With some parts of Scotland feeling considerable strain from the pre-pandemic saturation of tourism, including Edinburgh city center and several communities along the North Coast 500 road, it makes little sense to invest in new facilities in these areas. The Scottish government, however, could promote the growth of the sector in select areas by concentrating on communities that have not yet benefited from tourism expansion.

Disused church properties may also play an important role in providing tourist accommodation of higher quality in currently less frequented parts of Scotland, and there is a rising number of such properties available for development. The Church of Scotland reported in October that it was selling multiple buildings around the country after closure constraints resulted in an estimated £ 20 million decline in its annual revenue, in addition to the longer-term trend of former churches being sold for alternative use developments.

With more than 5,000 properties spread across Scotland, the church manages one of the largest holdings of buildings and land in the country. This portfolio, along with other denominations’ mothballed churches, may be an opportunity for deprived areas to reap the economic benefits of a flourishing tourism sector.

There is every reason to expect a bright long-term future for Scottish tourism, considering the major obstacles it currently faces. Our tourism offer could be further improved by a mix of government-funded Scottish Paradores and disused churches converted into high-quality visitor accommodation. This could also help spread the benefits of the economy to all parts of the country.

At accountancy firm Chiene + Tait, Iain Masterton is head of VAT

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