London's proposed overnight visitor levy capped at 5% of accommodation cost

A new tax on overnight stays in London will be capped at 5 per cent of the cost of accommodation, the BBC has reported.

Under the legislation, local authorities will be able to charge a flat fee or a percentage of the cost of an overnight stay for domestic and international guests in London accommodations.

London Mayor Sir Sadiq Khan told BBC London that he welcomed plans by the government and promised it would not be above 5 per cent per night.

The exact amount has not yet been determined.

"I fully support the government's decision, after years of lobbying, to give us the same powers that other cities, from New York to Los Angeles, from Chicago to Paris … have, which is the ability to raise a levy on those who come to our great city," he said.

"We've got to invest in making sure that [our] city continues to be attractive."

There are concerns the costs could put visitors off heading to London, an extremely popular destination for Australians heading abroad.

How will the tax work?

Between November of last year and February of 2026, the UK government consulted on the design of a new power for English councils to introduce overnight visitor levies or a "tourist tax".

The legal framework to do so will be introduced in the Overnight Visitor Levy bill, which has not yet been tabled in parliament.

A visitor levy set by English mayors would apply to hotels, guesthouses, bed and breakfasts, hostels, campsites, self-catering properties, and short-term lets, and university and religious accommodation when let commercially.

The levy would be set as a percentage of the price of the accommodation.

Mayors would be able to set local exemptions.

They would also be able to choose to set a visitor levy in some of their local authority areas but not others.

Members of the combined authority would be able to reject a levy by a two-thirds majority.

It will bring England in line with Scotland and Wales, which have already introduced powers for local authorities to raise a visitor levy.

Why is it being implemented?

The bill proposes that English mayors can spend revenue from the levy for "broader initiatives which have a positive impact on the region's economic health."

"Mayors will be empowered to deliver more long-term, locally led investment in transport, regeneration and cultural assets that can unlock growth and make places more attractive for residents, businesses and visitors," the bill said.

"The government will not compel any mayor to introduce this levy, nor will central government reduce funding for mayors if they decide to do so."

The levy could raise up to £240 million ($450 million) annually, according to Central London Forward, which represents 12 London local authorities and is based on a 3 per cent levy on the cost of a room.

Where else has it been applied?

Similar schemes have been implemented around the world.

In Europe, a city tax is the norm for many popular locations, including Venice, Rome, Amsterdam, Barcelona and Berlin and is used to fund local infrastructure and manage over-tourism.

In Paris, travellers pay from $2 to $15 per night depending on how the hotel is rated.

In New York, several taxes are applied to an overnight stay, which total about 14 per cent per night.

Japan also charges an overnight stay tax for foreign visitors per night.

How has Australia responded?

According to the most recent data from Visit Britain, 1.2 million Australians travelled to the UK in 2024.

During the travellers' visits, their total expenditure was a record £1.7 billion, with an average spend of £1,358 ($2,561) per visit.

Australians have criticised the proposed changes amid the growing expenses of overseas travel.

Australian Travel Industry Association chief executive Dean Long previously told the ABC the decision to tax travellers would add to an already expensive long-haul destination at the top of many Aussies' bucket lists.

"We're entering a new era where governments are increasingly targeting travellers with taxes," he said.

"It's a never-ending battle that ultimately means less money spent in the economy and less revenue for the small businesses employing the people who deliver the experiences."