Are yachts facing a Brexit VAT hit?

Date 04/11/2020
5 minutes to read
Richard McGlashan, Manager - VAT

At Equiom we have received a number of enquiries about what will happen to yachts in the EU after Brexit. With Brexit negotiations still in a state of flux it is impossible to know for sure what the final outcome will be, but on the basis that no deal looks most likely, let us summarise the impacts on yachts in the EU if that happens and the Brexit transitional period ends without a deal on 31 December 2020.

The key question as to whether a yacht will be affected by Brexit is where a yacht is situated at the end of the Brexit transitional period. In the following, all references to the UK include the Isle of Man.

The preferable result would be that any yachts which currently have EU free circulation via the UK will have that status ‘grandfathered’ (i.e. retained) once the UK leaves the EU. However, this is far from certain given that the prospect of a deal between the two sides looks remote.

UK VAT paid yachts in the EU

Yachts that are UK VAT paid will no longer be able to circulate freely in the EU from 1 January 2021. However, the general understanding is that UK VAT paid yachts that are located in the EU at this date will keep their Union status and will continue to be regarded as being VAT paid in the EU. We strongly recommend that proof of the location of the yacht at this date is obtained to evidence that the VAT paid status is maintained.

UK VAT paid yachts in the UK

Any yachts that are in the UK on 31 December 2020 and are UK VAT paid will retain that status but will no longer be able to circulate freely in EU waters without being imported into the EU or gaining access by another method (see comments on Temporary Admission below).

UK VAT paid yachts returning to the UK

Any yachts which are UK VAT paid but have not visited the UK in over 3 years may lose their UK VAT paid status. Therefore, if they return to the UK they could be hit with a second UK VAT bill. The UK Government have reportedly agreed that such yachts will have a deadline of 31 December 2021 (note the extra year after the end of the transition period) in order to return to the UK before they will seek to charge additional VAT. There remains considerable uncertainty as there has been no official announcement on this matter. This is the potential ‘double tax hit’ spoken of recently in the media.

EU VAT paid yachts in the EU

Yachts which are located in the EU and are VAT paid in an EU country other than the UK will retain their VAT paid status after Brexit, regardless of their ownership or flag state. However, they will no longer have free access to UK waters after 31 December 2020.

EU VAT paid yachts in the UK

A yacht that is in the UK on 31 December 2020 having entered via paying VAT in another EU Member State will have deemed UK VAT paid status but will lose its right to EU free circulation. The owner will have to import it into the EU again or enter under Temporary Admission, if available, to use the boat in the EU.

Private yachts in the EU under Temporary Admission (TA)

Any yachts that are currently in the EU under the TA regime, which is only available to private vessels, may lose their temporary EU free circulation if they began their TA through the UK. We recommend that yachts sail outside the EU prior to 31 December 2020 and re-enter to begin a new TA period through another EU country. Although this can be an oral process we recommend it is documented appropriately to avoid any issues with the VAT authorities at a later date.

Temporary Admission (TA) after Brexit

It’s not all bad news. UK owned private vessels, which would have previously been subject to VAT if they were to be used in the EU, will now (subject to certain conditions) be eligible to enter the EU under TA. TA is only available to non-EU owned assets, which UK owned yachts will be after 31 December 2020. Therefore, qualifying yachts will be able to enter the EU and freely circulate for a set time period with VAT and duties suspended.

Provided the UK retains the TA regime, the same is true in the opposite direction – EU owned private vessels will be able to enter the UK under TA without incurring VAT or duties.

Returned Goods Relief (RGR)

RGR is a regime that allows EU goods such as yachts to be exported from the EU and then return unaltered to the EU within 3 years without incurring further VAT or duties. For RGR to be available, a formal export from the EU is necessary.

There is discussion that RGR will be available for UK VAT paid yachts currently located in the EU and vice versa but it is not clear how this will work as no formal export declaration will have been made. It has been suggested that the date a yacht last left the UK will be deemed the date of export, which will therefore determine when their access to RGR expires.

Summary

The above seems convoluted but it all boils down to where a yacht is physically situated when the Brexit transition period ends. If outside the EU, the yacht may be subject to additional VAT if it returns to the EU. There may also be additional VAT on yachts returning to the UK after Brexit.

All of the above remains hypothetical at this stage and there has been a marked lack of updates on the consequences of Brexit on yachts from the UK Government. This is therefore our best current understanding of what is likely to happen.

In certain cases there is planning and structuring that can be put in place to mitigate the possible VAT impact. We have already led many clients through the necessary steps to fully ‘future-proof’ their yacht’s VAT and protect them from any VAT hit, regardless of what happens with Brexit.

Time is now getting short to take any actions, so please do not hesitate to ask if we can offer any assistance in this regard. For further information or advice, please contact Richard McGlashan.

This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.
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