Overseas income and UK taxation

[Neil Cummins]

Hi

I am considering purchasing a new yacht in Turkey and then chartering it out
through a Turkish company. I would be grateful for any thoughts/advice on
how this will affect my tax position - will the income be taxed by the UK
Govt? If so, can I claim tax relief on the charges that I will incurr in
chartering the boat (I will have to pay the charter company to maintain the
boat)?

Regards

Neil Cummins

 

[Alan Frame]

Hi

I am considering purchasing a new yacht in Turkey and then chartering it out
through a Turkish company. I would be grateful for any thoughts/advice on
how this will affect my tax position - will the income be taxed by the UK
Govt? If so, can I claim tax relief on the charges that I will incurr in
chartering the boat (I will have to pay the charter company to maintain the
boat)?

I see you've also mentioned this on ukrs - I'd suggest that what you are
actualy considering is lending the charter company working capital...

rgds, Alan

 

[Neil Cummins]

I see you've also mentioned this on ukrs - I'd suggest that what you are
actualy considering is lending the charter company working capital...

rgds, Alan

Alan

Yes, I've posted on ukrs for advice on the sailing side of things. The
actual deal that I am considering would involve me purchasing the boat, and
then paying the charter company to maintain and market the boat, whilst I
derrive an income (charter fees) from it, so the boat would legally be mine
from the outset, unlike the scheme run by Sunsail whereby you pay a lesser
amount to Sunsail (say 50% of the purchase price) and then after 5 years the
thrashed yacht becomes yours. As far as I can see the scheme I am
considering is more akin to buying a forigen property and then engaging a
letting firm to manage it - except of course that yachts depreciate :-(

Regards

Neil

 

[Alec]

Hi

I am considering purchasing a new yacht in Turkey and then chartering it
out through a Turkish company. I would be grateful for any
thoughts/advice on how this will affect my tax position - will the income
be taxed by the UK Govt? If so, can I claim tax relief on the charges
that I will incurr in chartering the boat (I will have to pay the charter
company to maintain the boat)?

Basically, if you are UK-resident and UK-domiciled, you have to declare your
worldwide income, whether remitted to UK or not, to HMCE through
self-assessment tax return. If you have to pay tax in Turkey, and if there
is a double taxation relief between the two countries (I don't know), then
what you pay in Turkey can be set against UK tax liability. When making your
return, you can deduct legitimate expenses - keep receipts.
If you are non-UK domiciled and you don't remit any profit back to UK, you
aren't liable for UK tax for any income or profit you generate abroad. You
may still have to pay local taxes in Turkey.

Alec

 

[Neil Cummins]

Basically, if you are UK-resident and UK-domiciled, you have to declare
your worldwide income, whether remitted to UK or not, to HMCE through
self-assessment tax return. If you have to pay tax in Turkey, and if there
is a double taxation relief between the two countries (I don't know), then
what you pay in Turkey can be set against UK tax liability. When making
your return, you can deduct legitimate expenses - keep receipts.
If you are non-UK domiciled and you don't remit any profit back to UK, you
aren't liable for UK tax for any income or profit you generate abroad. You
may still have to pay local taxes in Turkey.

Alec

Alec

Thank you - exactly the advice I was looking for. Does that mean that say I
derrive an income of £15000 per annum from the charter fees, but pay £7000
in expenses, I pay tax on the difference, ie I am paying tax on £8000?, or
is it more complicated than that? Also, and I think I might be stretching a
point here, can I make any claim for tax relief against the depreciation of
my yacht/asset?

Regards

Neil

 

[Alec]

Thank you - exactly the advice I was looking for. Does that mean that say
I derrive an income of £15000 per annum from the charter fees, but pay
£7000 in expenses, I pay tax on the difference, ie I am paying tax on
£8000?, or is it more complicated than that? Also, and I think I might be
stretching a point here, can I make any claim for tax relief against the
depreciation of my yacht/asset?

Basically yes, but your expenses must be 'wholly' and 'exclusively' in
running your business - what others in similar business would spend. There
is a general list of expenses you can claim - try looking at Self-Assessment
Help Sheets or perhaps speak to an accountant.
You cannot normally write off depreciation but you may be able to claim
capital allowance each year - normally you can write off 25% of your assets,
but balancing charge may occur if you dispose your assets at a price higher
than its written-down value (WDV). So if your boat costs £10000 and you
claim writing down allowance (WDA) of 25% each year:
Year 1: 25% of £10000 = £2500, WDV £7500
Year 2: 25% of £7500 = £1875, WDV £5625
If at the end of Year 2 you sell your boat for £6000, £6000-£5625=£375
balancing charge will be added to your profit and taxed. If you sell the
boat for only £5000, £5625-£5000=£625 balancing allowance will be deducted
from your profit, reducing your tax.

Alec

 

[Fred]

Basically yes, but your expenses must be 'wholly' and 'exclusively' in
running your business - what others in similar business would spend. There
is a general list of expenses you can claim - try looking at
Self-Assessment Help Sheets or perhaps speak to an accountant.
You cannot normally write off depreciation but you may be able to claim
capital allowance each year - normally you can write off 25% of your
assets, but balancing charge may occur if you dispose your assets at a
price higher than its written-down value (WDV). So if your boat costs
£10000 and you claim writing down allowance (WDA) of 25% each year:
Year 1: 25% of £10000 = £2500, WDV £7500
Year 2: 25% of £7500 = £1875, WDV £5625
If at the end of Year 2 you sell your boat for £6000, £6000-£5625=£375
balancing charge will be added to your profit and taxed. If you sell the
boat for only £5000, £5625-£5000=£625 balancing allowance will be deducted
from your profit, reducing your tax.

Alec

If this was through a ltd company, he could loan the company the "capital"
to buy the yacht. He could pay himself the loan back without any tax. When
this is paid off the question of how best to extract income becomes
relevant.

 

[Jonathan Bryce]

Thank you - exactly the advice I was looking for. Does that mean that say
I derrive an income of £15000 per annum from the charter fees, but pay
£7000 in expenses, I pay tax on the difference, ie I am paying tax on
£8000?, or
is it more complicated than that?

The expenses for tax purposes are slightly different than for accounts
purposes. If for example you take potential customers out to lunch while
you persuade them to hire your boat, that isn't allowable for tax purposes.

Also, and I think I might be stretching
a point here, can I make any claim for tax relief against the depreciation
of my yacht/asset?

You can claim capital allowances on the boat. Most likely 6% reducing
balance as a long life asset.

 

[Ronald Raygun]

The expenses for tax purposes are slightly different than for accounts
purposes. If for example you take potential customers out to lunch while
you persuade them to hire your boat, that isn't allowable for tax
purposes.


You can claim capital allowances on the boat. Most likely 6% reducing
balance as a long life asset.

Another complication arises from the fact that the boat is unlikely
to be purely in business use. Any private use would need to be dealt
with in one of two ways:

Either:

You charter the boat to yourself at the going rate. That makes the
boat a 100% business for accounting purposes, which means that all
expenses and capital allowances can be set against charter income,
but that income includes what you are paying yourself for your own
use of the boat. And you would not be allowed to give yourself any
discounts which would not also be available to real customers.

Or Else:

You note which percentage of actual use is personal and which business.
Then only the business proportion of all expenses and of capital
allowances can be set against charter income, but that income would
not include the notional value of personal use.

It may be possible, but could be dodgy, to disguise personal use as
"sea trials", i.e. making sure the boat is in suitable condition for
charter. You can get onto reeally thin ice tax-wise, especially if you
try to include your air fares as part of the general maintenance
expenses.

 

[Alan Frame]

[]
Yes, I've posted on ukrs for advice on the sailing side of things. The
actual deal that I am considering would involve me purchasing the boat, and
then paying the charter company to maintain and market the boat, whilst I
derrive an income (charter fees) from it, so the boat would legally be mine
from the outset, unlike the scheme run by Sunsail whereby you pay a lesser
amount to Sunsail (say 50% of the purchase price) and then after 5 years the
thrashed yacht becomes yours. As far as I can see the scheme I am
considering is more akin to buying a forigen property and then engaging a
letting firm to manage it - except of course that yachts depreciate :-(

Ah!
But yachts *don't* depreciate...

..... as long as you spend 10-15% of their value on maintainence each
year...

My guess would be that you /might/ be able to /offset/ your costs to the
extent that your use of the boat (ex-airfares, etc) only costs you, say,
2% of the capital value. IMO that's sufficently close to the cost of
Sunsail charter to make it not worthwhile - I don't think you'll make
enough (if any profit[0]) after the CharterCo cut to worry the IR.

My comment on your circumstances notwithstanding - even if you have the
capital to buy outright - if you were to live in a small flat nearby, do
maintainence/etc yourself and sail in the off-season, then it could
work, but if you're in FTE in the UK, then it seems a lot of hassle to
run a long-distance BTL with new tennants every week in the summer...

rgds, Alan

 

[Ronald Raygun]

Ah!
But yachts *don't* depreciate...

.... as long as you spend 10-15% of their value on maintainence each
year...

Hmm. 6x15% = 90%. I bet if you did *no* maintenance every year
it would depreciate over the course of 6 years to some figure which
is bound still to be more than 10% of its original value.

So it would seem that it would be cheaper to buy a new boat every
6 years than to spend 15%pa on maintenance.

 

[Tom Anderson]

Hmm. 6x15% = 90%. I bet if you did *no* maintenance every year
it would depreciate over the course of 6 years to some figure which
is bound still to be more than 10% of its original value.

So it would seem that it would be cheaper to buy a new boat every
6 years than to spend 15%pa on maintenance.

Ah, but you haven't factored in the value of having six years'
justification for spending days on end fiddling about with your beloved
boat ...

tom