Overseas income and UK taxation

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

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

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

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

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, 6000-562575 balancing charge will be added to your profit and taxed. If you sell the boat for only 5000, 5625-5000b5 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.

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.

Yes and yes. But if you kept the money in Turkey for when you go sailing your boat.....

Tro

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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

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