Top tax tips for investments of passion

Five tips for getting the most out of investments of the heart. 

Words: Nic Arnold, Director, PwC Private Client Team

The decision to buy a yacht or invest in art is often driven by the heart, rather than the head. And it is fair to say that the heart is unlikely to be thinking of tax reporting or penalties for inadvertently failing to understand the tax rules when experiencing the joy of a favourite painting or using a private jet.

But investors would do well to put the same level of tax consideration into the purchase of a luxury asset as they do when investing in a business or investment portfolio.

1. Corporate jets

Since income tax changes in April 2017 the private use of corporate jets has become increasingly complex, with individuals finding themselves subject to high “benefit in kind” income tax charges – even, in some circumstances, where they have paid for use of the aircraft. As a result, individuals owning their own jets need to review how they own and use their aircraft, and company directors using corporate jets should ensure that company policies are updated to ensure compliance and prevent unexpected tax bills.

2. Enjoying art world wide

While many yacht owners wish to enjoy valuable artwork by bringing it on board, this has hidden risks when sailing to multiple destinations. It is important to know the tax status of both the yacht and the art – and how this will be treated by different tax authorities.

3. National treasures

Tax isn’t the only consideration when moving art across national borders. Just because you’ve acquired a piece, it’s not safe to assume you will be able to take it out of the country where you bought it. Often an export licence is required and, in cases where a country feels a particular piece is of national importance, export may be denied altogether.

4. UK Property

The number of tax rules that apply to UK residential property has significantly increased in recent years. Simplicity is now key to decision-making, with direct ownership often (but not always) being the best option. Some individuals are still unaware of the taxes which may be due if UK property is held by trusts and companies and property portfolios will often require review.

5. Buying an aircraft

EU VAT rules on aircraft have been changed and some reliefs that were once available are no longer applicable. Owners who are now replacing their aircraft may find private ownership of aircraft increasingly expensive.

As a result, some owners are looking to commercially mitigate costs by leasing their aircraft to others. In many cases, this is a perfectly viable option; but care is needed where there is both business and personal use, as VAT may become payable unexpectedly and operations must be governanced carefully to meet tax authority approval.

6. Moving to the UK

Those moving to the UK to live here temporarily may qualify for the so-called “non dom” tax regime. Designed to recognise the international lives of individuals visiting and investing here, the tax regime seeks only to tax non-UK wealth to the extent it is brought to the UK (taking into account certain exemptions). However, non-dom clients should always take tax advice before bringing assets such as cars, yachts, aircraft, art and antiques into the UK as tax may be payable on these assets.

7. Visiting the EU

Looking beyond the borders of the EU; those living outside the EU may not be required to pay tax when sailing yachts and flying aircraft into the EU. “Temporary admission” relief enables owners resident in non-EU countries to “just visit” the EU without being charged VAT on the import of their asset. However, strict conditions apply, and there are many nuances within the rules, so care is needed.

8. The business of art

Most art collections evolve over time and, despite the large values often involved, planning and governance around a collection can be minimal, leading to unexpected tax charges or missed tax reliefs. In some cases the level of turnover in an art collection may mean it’s considered for tax purposes as an art trade. This has different VAT implications and may mean that VAT can be reclaimed and tax deductions obtained, but along with this will come other potential tax implications together with increased reporting and compliance requirements.

9. Investing in wine

Wine is becoming an increasingly popular investment class. However, shipping wine between countries, whether between houses or from the vineyard, without the correct customs advice, can cause costly delays and paperwork – and in some cases permanent confiscation of the wine.

10. Deal or no deal

With the lack of certainty around whether the UK will remain in the EU customs union it is prudent to plan ahead if UK luxury assets are not staying in the UK long term. It remains possible that possessions such as cars or art which have had VAT paid on them in the UK could, without a customs deal and agreed transition arrangements, incur a second VAT charge when moving them into the EU in the event of a no-deal Brexit. Keep on eye on this space.

 

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