French Yacht Leasing Schemes
French Yacht Leasing schemes were introduced in a drive to stimulate new boat sales.
The French government has permitted a significant TVA (French VAT) concession reducing the effective rate of TVA on a new boats. Though well-known within France, the concession is neither well-known nor well understood in the rest of Europe. The concession is open to any EU citizen, including a British sailor buying a new boat in the UK, provided the boat is registered in France for the duration of the lease and that care is taken to ensure that all the requirements pertaining to the concession are met.
Essentially the French yacht leasing scheme is a 50% allowance against the full rate of French TVA rate and is applicable to new boats purchased through a French government approved lease / purchase scheme. Though the lease / purchase schemes vary in detail and can be arranged through a number of French financial institutions, the principle conditions are common to all schemes and are relatively simple.
There are five principle conditions which normally apply to approved schemes:
- The boat must be purchased new.
- TVA is only due on 50% of the price of the boat.
- The lease purchase contract must be for a period between 3 years to 12 years.
- An option to purchase of 1% of the boat’s price must be included in the contract.
- The boat must be French registered when purchased.
To understand the leasing scheme let’s take a look at two simple worked examples, one for a cash buyer and one for a credit purchaser.
For a cash buyer, able to make a 50% initial payment on a £100,000 ex VAT yacht, UK VAT would be £20,000. The same yacht, brought from a UK company but using a qualifying French lease / purchase scheme would only be subject to French TVA of £10,000. The financing charge from the lease / purchase scheme would be £10,900 at current Euro rates of interest but this would be offset by placing a matching sum on deposit in £ Sterling at the higher underlying £ Sterling rate which would earn an offsetting amount of interest thus neutralising the financing charges.
For a credit purchaser the situation is very similar except that the 50% saving on TVA is somewhat offset by higher financing charges. For a buyer needing to finance the whole cost of a new £100,000 boat over three years, the cost of the boat would be about £100,800 thus the TVA saving would pay for almost all of the credit charges.
Additionally, there are two further positives to be taken into account. French ports are generally readier to grant annual marina berths to French registered boats and a for a typical 11 metre yacht a French marina berth will cost around £700 per year. With a French registered boat, French insurance is advisable and this, like car insurance, will be about 30% cheaper than in the UK.
On the down side the “droit de francisation et de navigation” is an annual duty levied by the French government on French registered pleasure craft and for a typical 11 metre yacht would amount to around £400 per year for as long as the boat remained French registered and this would eventually claw back the TVA saving unless the boat was re-registered outside France.
UK Buyers Save £,000’s
Yacht Leasing is saving UK buyers tens of thousands of pounds on new boats and major refits despite HMRC disapproval. Using the example of a £100,000 yacht purchased with a 50% deposit leaving a balance of £50,000 to be financed over 5 years the saving could be £12,144.10. For this example, a typical UK marine mortgage monthly repayment would be £1,049.12 compared with £860.90 for a French yacht lease. Total financing cost for the UK marine mortgage would be £12,947.20 compared with £803.10 with French yacht leasing.
Why is French yacht leasing so cheap? A UK marine mortgage is an agreement to borrow a sum of money and repay it, with interest, over a fixed period time. By shopping around, it’s sometimes possible to get a marginally better rate but there is seldom much variation between lenders. French yacht leasing is different. The prospective purchaser decides which boat to purchase and negotiates the price with the dealer of their choice. They then sign an agreement to lease the boat from the lease company who purchase the boat from the dealer. The lease is for a fixed term and the lessee agrees to make a final nominal payment to purchase the boat from the leasing company at the conclusion of the lease. The French yacht leasing option is cheaper because the tax treatment of the transaction is advantageous and part of the tax advantage, in this example £12,144.10, is passed on to the lessee. The details of the tax treatment are beyond the scope of this article but are affected by permitted asset depreciation rates and by the special VAT treatment accorded to yachts capable of offshore passages beyond EU waters. Similar regulations to those in France apply in Italy and Malta so banks in these countries can also provide attractive marine lease facilities to new boat buyers.
We contacted 5 individuals who had acquired new boats using independently sourced French yacht leasing. Only one had encountered any difficulty and all had kept their boats in France for the duration of the lease. The reported difficulty was the case of a boat brought through a French dealer that advertises in the UK yachting press. The boat was sold from the builder to a main agent, then to the dealer, on to the leasing company and finally to the UK owner. The dealer refused to provide a copy of the invoice from the main agent, possibly because it showed his profit, and the UK owner was forced to take court action in the UK to complete UK registration.
UK boat dealers advise caution because HMRC actively seeks to “discourage” UK residents from taking advantage of French yacht leasing. The experience of one major yacht dealer’s client is typical of the how the HMRC “discouragement” strategy works. The client asked the UK dealer to arrange a French marine lease and the boat was duly delivered to the new owner, a French lease company. HMRC objected claiming that due VAT had not been paid but chose to proceed against the dealer on the grounds of VAT evasion rather than the owning French lease company. Subsequently, after much legal discussion, HMRC refused the offer to take the case forward as a test case so that a court precedent could be set. HMRC’s position remains that it reserves the right to review any case whilst declining to offer definitive guidance to prospective lessees.
Despite HMRC disapproval one French bank was at the Southampton Boat Show looking for business. Though keeping a low profile, the bank admitted to being keen to attract more UK French yacht leasing clients and was running a recruitment campaign targeting UK boat dealers, offering a 1% commission on every marine lease client introduction. The bank knew of “some difficulties” with HMRC and will not allow leased boats to visit UK waters, but is happy for boats kept in French waters to be UK registered. They confirmed they had experienced no problems with HMRC concerning ex-lease boats being moved to UK waters after the final lease payment had been paid and VAT receipt issued. In the last few months some major French banks have begun offering French yacht leasing to UK residents via English language websites so removing the language barrier. In a parallel development, some French boat dealers now offer French yacht leasing facilities to UK buyers as part of their new boat sales packages.
HMRC emphasise that every pleasure craft in UK waters must capable of proving VAT paid status. Following cases of attempted VAT evasion, where wealthy individuals have set up shell companies to act as lease vehicles to evade VAT, HMRC’s response has been to view all French yacht leasing as potential evasion. Under French yacht leasing the boat will have been purchased by a French registered company as a business asset and VAT will have been accounted for in their books according to French regulations. During the period of the lease, the leasing company will not normally issue any formal document attesting to a boat’s VAT status only a document stating that the boat is the property of the leasing company along with details of the lessee. The HMRC right to challenge any boat navigating in UK waters and impound it for the duration of any investigations that they might subsequently institute into the boat’s VAT status is thus a powerful deterrent. HMRC will accept as VAT paid a boat which has been the subject of a French yacht leasing scheme once the lease is complete provided that the owner can produce an invoice from the leasing company showing that the final payment included a payment for all necessary VAT as due under the French VAT jurisdiction, the jurisdiction applicable to the lease transaction.
Despite HMRC “discouragement” a number of UK residents have successfully saved substantial amounts of money by using a French yacht lease. The most common strategy used is to take the minimum lease period and keep the boat in France until the lease is completed and the leasing company VAT receipt is available for production to HMRC.