Wealth means luxury toys and the most luxurious of all has to be the yacht. Whether a sleek 45 knot, 25 metre power-cruiser, or a state of the art ocean going racer-sailer, the wealthy international businessman will want to play with one at some time in his life.
And hand in hand with their accumulated wealth will have come an increasing awareness – probably through their professional tax advisors – of the increasing role played in their financial affairs by sophisticated offshore finance centres such as Guernsey.
Guernsey, popular destination for sailors as well as tax planners, may not have always been a finance centre but it has an extensive maritime history (we are the descendants of successful privateers) and it wasn’t long before the two married to find a tax efficient way for yacht ownership. The privateers, I will emphasise, are long gone.
The link was a simple one – corporate ownership and registration of the yacht under the auspices of the British flag. So what are the benefits?
The Merchant Shipping Acts of 1894, 1988 and 1993 state the following persons are entitled to register a yacht on the British Register of shipping –
(a) British subjects;
(b) Bodies corporate established under and subject to the laws of the United Kingdom or some part of Her Majesty’s dominions, and having their principle place of business in the United Kingdom or those dominions.
Guernsey is one of those dominions and immediately opens the way for the international client (whether or not they are the holder of a British passport) to establish a Guernsey company for ownership of their yacht and thereby take advantage of the benefits of British registry. Some of these benefits are tax driven and some are associated with sound legislation, for example –
(a) The strict requirements for registration, including the provision of physical proof of the yachts existence and identity by means of a tonnage survey, ensures that an owner of a British registered yacht has definitive proof of title. This is important to a purchaser and equates closely with the title deeds to a property.
(b) This proof of ownership greatly assists with the registration of marine mortgages and simplifies documentary procedures for any future transfer of ownership.
(c) A British registered yacht sails under the protection of the British Crown, enabling authorised users of the yacht to ask for assistance from British Embassies and Consulates throughout the world.
So, what of the tax planning opportunities? First and foremost there is estate planning. Rather than own the yacht directly, the client owns the shares in the company which are then subject to the terms of his will, or if his advisor so advises, an offshore trust. With careful planning the latter may mean the client is able to circumvent inheritance tax in his home country.
Secondly, provided the Guernsey company is properly registered with the local tax authorities, it is not subject to tax in Guernsey. As a consequence, should the yacht be chartered then the charter income can be collected and held in Guernsey free of Guernsey tax. In addition, should the yacht be sold for a capital gain, there is no additional corporation tax to be paid. In fact, the normal way for a sale to progress is for the shares in the company to be sold to the new owner rather than the yacht. This is a far simpler and more straightforward procedure than going through the onerous and expensive procedures of selling and re-registering the yacht itself.
Thirdly, there is no inheritance tax liability in Guernsey should the owner unfortunately die. The shareholding, if not held by way of trust, can be held so the shares pass automatically by way of survivorship – i.e. "Mr. and Mrs. Smith or the survivor of them".
However, do beware, should a client insist the shares are held in his sole name and he dies, he does so with an estate in Guernsey. This makes it necessary to go through the process of proving his Will in the Guernsey Royal Court and obtaining Letters of Administration over his Guernsey estate - a costly and time-consuming process.
Fiduciary companies, such as the Bachmann Group, have long established specialist marine departments who not only ensure the tax planning options are laid before the client and his advisor, but also arrange and ensure the correct registration procedures are followed. This will include the tonnage survey, checking title, liasing with the builders wherever they are situated and making stage payments if the yacht is a new build.
Bachmanns will also establish the Guernsey company and provide full management and administrative services to the company, including provision of nominee directors and shareholders and company secretary. The client can be shareholder himself, but many high-profile businessmen prefer to rest behind the anonymity of nominee shareholders.
Over the years specialists such as Bachmanns have extended their range of services so they are now able to incorporate and administer companies in other Crown dependencies such as the Isle of Man, Gibraltar, Cayman Islands, British Virgin Islands and also to register clients yachts in these jurisdictions.
In addition they will offer active ancillary services such as crew employment, payment of crew salaries, controlling stage payments on a new build or major refit, radio-licensing for the vessels broadcasting equipment (Bachmanns have their own call-sign, GB12), inmarsat satellite communications, and, most importantly, see you through the minefield of insurance to ensure you have the correct and comprehensive cover for your equipment, your cruising range and your crew. Should you be unfortunate enough to have to make a claim then Bachmann Insurance Brokers will handle all the liason with the insurers wherever you are in the world.
One item which is usually not offered by these specialists is marine finance. This is a complex affair because yachts by their very nature (they are moveable and vulnerable) are not considered safe enough security for a bank to lend against. Most bankers have an image of their security sailing into the sunset and disappearing forever across the horizon.
Given a yacht will often cost hundreds of thousands, and likely as not, millions of pounds, this reticence is understandable. Bachmanns are able to provide introductions to lending instititions but clients need to be ready to supply additional collateral security such as property or blue-chip company shares, together with excellent financial references.
Lastly, I cannot finish this article without mentioning VAT. Sometimes referred to as that ‘Very Awful Tax’ , but definitely a very complicated tax, however one that can be deferred given proper planning. Note the word ‘deferred’ – it is not a tax that can be avoided and a client should be wary of any advisor who suggests it can.
The basic rules are straightforward and are as follows (for a more in-depth review visit the Bachmann website) – if you are the holder of an EU passport and are using your yacht in EU waters you have to pay VAT on your yacht. If you are non EU resident you may use your yacht in EU waters for a period of six months, whereupon if you stay you pay, but if you leave you cannot return for a period of a further six months.
Simply placing the ownership of the yacht in a Guernsey company does not get around the VAT legislation even though Guernsey is outside of the EU – the authorities will look to the user of the yacht.
Suffice to say the tax planners have also found ways to defer client VAT payments and Bachmanns will be pleased to discuss these in detail with any interested clients.
So, from privateers to legal tax planners – who would have believed how maritime history can be put to use?
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.