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Lester Aldridge Life Matters for Lymington: VAT when buying a boat

Taxing Times: Considering VAT when buying a boat

Lester Aldridge Life Matters for Lymington: top tips for avoiding unexpected VAT liability

The issue of VAT has always been a bit of a minefield for anybody looking to buy a boat, and Brexit has only made life trickier.

This month the Lester Aldridge feature article in the "Life Matters for Lymington" series helps prospective boat owners ensure that they are not hit with a VAT liability that they were not expecting.

Couple on sailing yacht, sunset behind them

So what has changed? And what do prospective boat owners need to know to ensure they aren’t hit with a VAT liability that they were not expecting?

Before Brexit, boats were either “VAT paid” or not. Now, there is a key distinction between EU and UK VAT paid. The location of the boat will also have a big impact on your VAT liability, alongside several other interlocking factors.  

Common scenarios for UK residents

Buying a boat in the UK?

As before Brexit, VAT on all new boats bought in the UK for use in UK waters will be payable at 20% of the purchase price. 

If you’re buying a used boat from an individual in the UK on which UK VAT has already been paid you shouldn’t have to pay any VAT. But you should be careful to verify the VAT paid status before you buy it (see our top tips below).  

What are the tax implications if you want to take your boat to the EU?

You can take a UK VAT-paid boat to the EU and use it there for up to 18 months under the Temporary Admission (TA) scheme. After that, you will simply need to leave EU waters temporarily to avoid a tax liability but can then return to the EU to start the clock running for another 18 months. Do be aware, however, that when a boat is in EU waters under the TA scheme, it can’t be sold or chartered: doing so is likely to attract a tax liability.

New boats purchased from a UK dealer can also be exported for use in the EU without the need to pay VAT, provided certain criteria are met. The boat will then be allowed to stay within EU waters under the TA scheme, mentioned above, so you’ll need to leave EU waters at least every 18 months. You should also be aware that if you eventually decide to bring the boat back to UK waters, you will become liable for UK VAT, calculated at 20% of the value of the boat at the time of import (i.e. taking into account any depreciation or price increases).  

What about buying a boat that is already located in the EU?

This can be a more straightforward option. An EU VAT-paid boat, bought in the EU, can be kept there without incurring a VAT liability for as long as you like. But remember that if you bring it home to the UK, you will incur a VAT liability on importation. It is also extremely important to verify the VAT paid status before you buy it (see our top tips below).

If you find the boat of your dreams in the EU but it is not “VAT paid”, don’t despair! Completing the transaction outside EU waters can avoid a VAT liability. Gibraltar or Guernsey are common destinations for this. The boat can then return to the EU on a TA basis (remembering the 18-month rule). Different EU countries have different approaches to this practice and appropriate provisions may need to be incorporated into the sale contract, so it is prudent to seek expert legal advice in such cases.

(The above scenarios apply to UK residents. Different principles will apply to EU residents.)

Top tips

  • Whatever the VAT position, it should not be an afterthought. It should be considered at the outset and provision made, where necessary, within the sale contract, to ensure your interests are protected. 
  • Don’t take it for granted that a boat that is advertised as being “VAT paid” is really “VAT paid” – expert advice should be sought to ensure the correct amount of VAT has been paid, that it hasn’t been reclaimed (e.g. if the seller is a company) or the VAT status lost and that it is all properly documented. Other factors such as the boat’s location when the UK left the EU may also be important.
  • Keep good records - there is no central registry recording the VAT paid status or location of boats, so it is up to individual boat owners to ensure they keep comprehensive records of all VAT payments and the boat’s movements between the UK, EU and other jurisdictions in case of queries from tax authorities.
  • Seek expert advice - This can be a complicated area so we would always recommend seeking advice. The specialist marine team at LA Marine can guide you through the potential pitfalls and help protect you from nasty VAT surprises.

The final word

If you, as a UK resident, are looking to buy a boat for use in the EU, VAT should be a primary consideration. A 20% VAT bill can amount to a significant sum, but this can potentially be avoided with a little upfront due diligence and specialist advice. 

The experts at LA Marine will be happy to answer any questions you may have on the above or any other issues.

LA Marine – experts in yachting law 

LA Marine is the specialist marine law team at Lester Aldridge solicitors and are the South Coast’s leading marine lawyers. With a history dating back over 20 years, we are excellently placed to assist and advise on all yacht-related transactions or disputes, big and small.

Please feel free to contact our friendly team on 02380 827415 or to discuss how we may assist you further.

Article by Philippa Langton, Partner, and Lucy Goff, Associate, LA Marine

023 8082 7475

01202 702612.

Natasha Mallet, Lester Aldridge Solicitors

Article by Philippa Langton, Partner, and Lucy Goff, Associate, LA Marine

About Lester Aldridge Solicitors

Lester Aldridge Solicitors are based in London, Southampton and Bournemouth - where the office covering the New Forest is situated conveniently close to the main Bournemouth train station. Their specialist teams in the various fields of law will be happy to advise and assist you, starting with a completely free initial consultation during which you can decide whether you feel able to trust them with your confidential information. Consultations are also available via virtual meetings : advice is available through phone, email, Skype and Zoom.

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Life Matters is a regular monthly feature on Lymington.com, which covers a wide range of legal subjects and is always written by one of the Lester Aldridge team.

You can see a list of all published articles by clicking to the Lester Aldridge Solicitors webpage on Lymington.com here.

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