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(Value Added) Tax Free Sailing: What a Relief!

Buying a yacht usually involves a major outlay on the part of the buyer and there are a number of important considerations that should be reviewed and confirmed prior to committing to purchase. Chief amongst these is understanding the VAT implications involved in both the purchase and ongoing use of the vessel.

Each purchase is unique, and we regularly see buyers who, either due to a lack of awareness or failure to fully understand the relevant VAT laws, make costly errors in how they structure their purchase.

Here are five key factors that private buyers need to consider when purchasing a private yacht for non-business use.

The current location of the vessel

Whether you are purchasing a new boat directly from a manufacturer or brokerage, or you are exploring the pre-owned yacht market, the physical location of the boat will be your starting point to determine in which country or jurisdiction VAT may be payable on the vessel.

The current VAT status of the boat

The default position for any vessel is that it must be in ‘free circulation’ in the jurisdiction in which it is being operated. Put simply, this means that VAT (or the equivalent sales tax where applicable) must have been paid or accounted for on the boat, giving it VAT status in the relevant territory – this is often referred to as ‘VAT paid status’ [VPS]. It should be noted that VPS can be lost due to chargeable events such as crossing customs borders (a common occurrence given that boats are essentially designed for travel), being sold or using the boat for business.

Potential reliefs – residency status

There are, however, a number of reliefs potentially available that obviate the need to pay VAT, with residency status being one of the primary conditions in determining eligibility. Temporary Admission Relief [TA] may be available to owners not resident in the territory of use (subject to other conditions also being met) for a period of up to 18 months at a time, while Transfer of Residence Relief [ToR] may enable a private yacht owner to gain relief from VAT and duty when moving a boat as a personal possession when relocating their residence to a different customs territory (such as moving from the EU to the UK).

Confirming residency status for VAT and customs purposes is not always straightforward as many owners spend large periods of time in multiple locations around the world and there is no single, specific definition of ‘habitual residence’ for customs purposes.

The intended destination of the boat

Is the intention to keep and use the boat in its current location following purchase? If so, then it is critical to confirm the current VPS of the boat and establish the method of purchase that best fits with the intended ownership status and proposed use of the vessel.

If it is your intention to move into and use the boat in a different VAT jurisdiction following purchase (such as taking a boat currently in the EU to the UK or vice versa), the location and terms of delivery should be reviewed to ensure that the most VAT efficient method of purchase is used to meet your specific circumstances.

Registration of the vessel

As with the residency it is important to ensure that the boat’s country of registration does not compromise the owner’s eligibility for the relevant VAT and duty reliefs.

Whilst failure to address the above points can prove costly and result in a requirement to pay VAT (potentially avoidable with the correct delivery structure and use of reliefs), possibly twice (in two jurisdictions!!!) or, in extreme cases, a boat being impounded and assessed for VAT – taking professional advice and putting together a comprehensive plan for your purchase can result in considerable VAT savings. In fact, it is possible for prospective yacht owners with UK residency, who wish to own and operate a yacht in the Mediterranean (or other locations outside the UK), to legitimately do so without paying VAT on the purchase of the vessel and in certain circumstances, vessel costs.

PKF Francis Clark has a team of VAT and customs experts on hand to help identify the best purchase structure for your specific circumstances and, via the professional network we have built up over years working in this area, assist with the implementation and documentation of this process.

Get in touch:

[email protected]

Tel: 01202-663696

FEATURING: Jim Suswain
Jim is a member of PKF Francis Clark’s respected VAT team offering indirect tax guidance and support to both clients and colleagues. Having completed his… read more
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