Luxury brands urge return of UK tax-free tourist shopping

Watch and jewellery brands have highlighted the impact on business of the removal of tax-free shopping in the UK.

Rishi Sunak, then chancellor of the exchequer, scrapped the VAT Retail Export Scheme in Great Britain — which allowed visitors from outside the EU to reclaim the value added tax on goods bought — with effect from January 1 2021, following the Brexit transition period.

Business leaders have since called for the reinstatement of tax-free shopping, with more than 300 — including watch and jewellery brand executives — signing a letter to the current chancellor, Rachel Reeves, in October.

“Tourists are feeling completely unwelcome and disincentivised to come shopping in the UK,” says signatory Sophia Hirsh, managing director of Mayfair-based jeweller Hirsh London. “We deal with a lot of clients that would come normally year on year, sometimes twice a year. They still enjoy coming to London but instead of spending 10 days here, they’ll fly in, take the Eurostar to Paris, do some shopping, come back and fly home — or fly down to Milan. They’re changing their habits and it’s purely because of the tax-free shopping.”

Sales to overseas tourists accounted for 4 per cent of turnover at Hirsh London between February and November 2024, compared with 30 per cent for the whole of 2019, says Hirsh, who attributes the slump to the removal of tax-free shopping. And, four years on from the change in policy, her brand is not alone in reporting a drop in trade to international visitors.

Five per cent of retailer Watches of Switzerland Group’s UK market came from a combination of sales to tourists in its stores and airport outlets at the end of 2024, compared with 33 per cent pre-Brexit, says chief executive Brian Duffy. He says it is UK retailers that “have really lost out” from the removal of tax-free shopping because they have “no beneficial offset” — unlike the European luxury brands on London’s Bond Street that also have stores in Paris.

Sophia Hirsh: ‘Instead of spending 10 days in London, clients will take the Eurostar to Paris or fly to Milan’ © Charlie Bibby/FT

Antoine Pin, chief executive of Tag Heuer, says it is difficult to identify the specific impact of the removal of tax-free shopping on the Swiss watchmaker’s UK sales because there are other factors to consider, including the global economic environment, Brexit, and “the ups and downs of the sector” post Covid. However, he says there has been a “double-digit drop” in both footfall and purchases by international tourists compared with 2019.

Over the same period, Tag Heuer has seen an increase in sales to overseas visitors in Paris, Switzerland and Italy, Pin points out. “Again, you don’t correlate 100 per cent, but you see the expansion of the business out of the UK,” he says. “We also can trace some of our clients who used to buy in the UK, who are now buying out of the UK.”

Pin says some tourists consult the internet on their phones in front of store staff, “calculating precisely the benefits or the drawbacks of purchasing in the UK”. The “transit of purchases” to other countries undermines its local investment, he adds.

Hirsh says a 19 per cent year-on-year decrease in sales at Hirsh London is partly due to the loss of tax-free shopping, plus a drop in new UK-based clients because they can now shop tax-free in the EU.

Five per cent of tax-free spend in Europe on watches and jewellery between January and September 2024 was by UK shoppers, according to tax-free shopping specialist Global Blue. Customers from the US accounted for 27 per cent.

Global Blue’s Watches & Jewelry Study in October found the average tax-free spend per shopper on these items in Europe was up 38 per cent between January and September 2024, compared with the same period in 2019. The category’s recovery is being driven by the exclusive (average spend €28,200) and luxury (average €7,750) segments.

A graphic design showing the word “VAT” integrated into a golden chain with one of the links broken — © Ben Hickey

If there is no change in UK government policy this year, Hirsh says she “will have no choice but look at other options” to grow her business, including working with overseas stockists for the first time. She is also considering holding events abroad.

Watches of Switzerland has focused its efforts on its domestic market. Similarly, Pin says Tag Heuer has mitigated some of its missed sales opportunities by “talking more than ever” to local clients and offering experiences, from an in-store product presentation with a glass of champagne to a visit to the manufacture in Switzerland. These, he says, help build stronger relationships between staff and customers “so that, eventually, the price itself is not the major factor” in a purchase decision. Both companies have offered limited edition watches in the UK.

Breitling launched its Superocean Heritage B20 Automatic 42mm limited edition watch in the UK and Ireland last month, having released the limited edition Superocean 44mm and Chronomat 42mm exclusively in the UK earlier in 2024. “Local special editions have contributed to creating reasons for tourists to buy, while also appealing more broadly by being tailored to the market and produced in limited numbers, adding an element of scarcity,” Gavin Murphy, managing director of Breitling UK, explained in a statement.

A luxurious watch boutique with a modern interior design featuring wooden paneling and glass display cases filled with watches. A salesperson is assisting a customer at the counter, while another customer reviews items nearby. In the background, a group of people is seated at a table under TAG Heuer branding — Watches of Switzerland has refocused sales on the domestic UK market © Simon Dawson/Bloomberg

While the lack of tax-free shopping presents “some obstacles in being competitive with the rest of Europe”, he said the brand, which has 23 regional boutiques, is not entirely reliant on trade from visitors to London.

Last year, the UK’s Office for Budget Responsibility estimated that the withdrawal of the VAT Retail Export Scheme would save the exchequer £540mn by 2025-26. However, the Centre for Economics and Business Research consultancy said that a fully operational scheme could have boosted UK GDP by £11.1bn in 2023.

International shoppers can still buy goods tax-free if they have them sent directly to their address outside the UK (and outside the EU if in Northern Ireland), but brands say few take up this option.

However, UK jeweller Boodles’ VAT-free export sales (excluding ecommerce) rose from £2mn for the whole of 2019 to £6mn for March-November 2024, according to chair Michael Wainwright, with marketing activity in the US key to the growth. Most of these sales were in store, with the jewels consigned by courier. The 2024 figure is, however, a little skewed by a high-price sale to Oman, says Wainwright.

He says Boodles has been less affected by the removal of tax-free shopping than some brands because it sells predominantly to UK-based clients, but admits sales “could be absolutely on fire now if there was no such thing as the ‘tourist tax’”.

He cannot see policy changing in the foreseeable future. Nevertheless, Duffy — who, like Wainwright, signed the letter to Reeves — is “hopeful” following last year’s change of UK government. “All we’re asking for, actually, is that the government be open to objectively looking at all the facts . . . we believe when they do, they can only come to the same conclusion,” he says. “We therefore think it’s inevitable that [tax-free shopping] comes back. But it’s a matter of when.”

A spokesperson for the Treasury said: “We have no plans to introduce a new tax-free shopping scheme in Great Britain. Visitors can continue to claim VAT relief where the items purchased are shipped directly to their home country as exports.”