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Clarification on UK VAT rules following Brexit
In response to a recent article published by the Financial Times in relation to British owners paying double tax on their yachts following Brexit, it should be noted that this related to yachts currently owned by UK residents that are VAT paid, situated outside UK waters and expected to return to the UK after 31st December 2020. Also, this is based on the author’s opinion of how the current negotiations between the UK and EU will be agreed. We do not believe any agreement will happen until the eleventh hour, and would not wish to try to predict the result of these discussions. All we currently see is a lot of sabre rattling and little public agreement, but an agreement is very much in both parties’ interests. At the moment we are still talking politics and not economics!
We understand that the UK are not looking at applying a ‘grandfather’ policy for yachts that are VAT paid in Europe, sailing to the UK after 31st December 2020 and taxing all these yachts on arrival into the UK, even if the tax had been paid in Europe. Therefore, if the client is intending to bring the yacht into the UK, the original stance was that they had to return before 31st December 2020 and not leave until after the UK finally leaves the EU on the 1st January 2021. However the UK have recently extended the return date until 31st December 2021. If they have no intention of bringing the yacht to the UK then there is no issue. This was the policy prior to 1993 when the concept of European waters was introduced, when VAT avoidance was to own your yacht through an offshore company and keep it in a jurisdiction other than where the client was resident using the then Temporary Admission Relief (TAR) rules, and never taking it into UK territorial waters.
Therefore, if the owner intends to bring the yacht back to the UK between now and 31st December 2021, provided it stays in the UK until after 1st January 2022, it can then return to the EU under TAR, and provided it returns to the UK within 3 years of leaving it can retain its VAT paid status in both jurisdictions.
Unless there is an agreement from Customs, any UK resident using the UK or Isle of Man registration for non VAT paid yachts after 31st December 2020 will be entitled to keep the yacht in EU waters under the TAR rules.
Moving on to flagging and ownership, we must look at yachts in European waters that are owned and registered outside EU jurisdictions. There are many yachts in Europe owned by non-EU residents through Cayman Islands companies under the Cayman Islands Shipping Register. Whilst these are usually operating under TAR rules, if they are VAT paid, either through one of the now defunct leasing schemes or tax paid with no reclaim, they do not lose their VAT paid status because of the change of ownership within the EU.
The big difference between yachts owned and registered through EU and Non-EU entities is when leaving EU waters. If the yacht is EU owned and registered, there is an assumption that it will return and claim returned goods relief. If it is non-EU owned and registered this assumption does not apply and the yacht should declare its intention to return before leaving. In both cases if it does not return within 3 years or has a change of ownership before its return, the returned goods relief does not apply and any VAT paid status is lost with the tax being payable again on its return at the then market value.
If you wish to have a formal opinion based on the above informal representation, please let us know and we will be happy to arrange this for you through our trusted partners.