The yachting industry attracts two types of people, career crew who want to climb the ranks and the ‘back-packer’ types who have fallen into yachting after travelling or a ski season in the Alps.
Whichever category you fall into, it is important to make informed financial decisions early on in your career as this will affect your financial options later on. Just as we have two main types of people entering yachting, there are two main schools of thought when it comes to tax and mortgages.
Historically, it was common thinking that when you join a yacht you should open an offshore account and become non-resident. In fact most of the older yachting community still believes they are somehow outside the law when it comes to tax. A significant number of British yacht crew also chose to be non-resident because that was the norm when they first entered the industry.
More recently, both the world of finance and the yachting industry have changed so much that those coming into yachting now tend to ask about tax matters first and currency accounts second.
Resident vs Non-Resident
The majority of crew who opt to be non-resident simply leave the UK without filing the necessary paperwork, hoping that the advice of their peers is correct, but there's always the worry that you might do something wrong and risk getting caught out.
For example, non-residents generally choose to leave their salaries untouched in offshore accounts due to the fear of unnecessary attention through moving it around. However, this type of account typically does not offer individuals interest on deposits held, as any interest is paid to the jurisdiction of the bank, thereby affording them transparency. Thanks to the OECD and Automatic Exchange of Information, this transparency is over, and you may also be losing money as savings no longer appreciate in line with inflation.
Furthermore, the implementation of the Common Reporting Standard (CRS) by all offshore banks has made banking for non-residents almost impossible as clients are now required to show a country of residence and provide a tax number. In order to comply, non-residents are having to become resident again in order to retain their accounts.
When it comes to investments, property has long been the favourite among those working in the yachting industry, and before the crash in 2008 you could find competitive offshore mortgages that didn’t require proof of earnings in the form of an SA302 letter. However, since the crash, the pool of offshore lenders has significantly decreased, and lending rates and the deposits required have made the option of buy-to-let much less attractive.
Offshore investments have also provided non-residents with ways to grow their capital. However, with the advent of the Offshore Disclosures Facility, the requirement to become resident again means that these investments can no longer remain hidden either.
The Benefits of Residency
As well as being the status quo in yachting, many crew decide to be non-resident because they are unaware of how easy it is to resolve their situation in a positive way.
But bear in mind that the Seafarers Earnings Deduction (SED) allows British crew and EU citizens resident in the UK to claim 100% tax relief on their earnings. Once you have become resident again you can also access all the same financial products as anyone living and working in the UK, so ISA’s, savings accounts and competitive mortgage rates are suddenly available to you again.
On balance, remaining non-resident no longer makes financial sense. With ongoing changes and a tightening of the rules, sooner or later non-residents will have limited or no access to financial services or products. It is our opinion that fear and a poor understanding of the options are what perpetuate the decision to be non-resident rather than choose the simpler process of declaring income and becoming resident once more. The financial benefits far outweigh the alternative, especially for British yacht crew who can take advantage of the SED and enjoy peace of mind without paying income tax.
If you would like further advice on any of the points raised in this article please feel free to contact me by email: Pat.firstname.lastname@example.org
Any tax advice in this publication is not intended or written by Marine Accounts to be used by a client or entity for the purpose of (i) avoiding penalties that may be imposed on any taxpayer or (ii) promoting, marketing or recommending to another party matters herein.