Financing: Leasing Is King

Leasing

In Europe, and particularly in France, leasing dominates the market. About two thirds of all new-buy finance deals are done through leasing. The reason is simple: it's the cheapest way to buy a new or nearly-new boat, or put another way, any boat which is liable for a purchase tax (eg: VAT in the UK). In fact, as long as you acquire the necessary safety equipment, for any boat which may leave territorial waters, (A, B or C category vessels which are 5 meters or longer) the tax on the repayments is reduced by half, so 10% instead of 20% for example. It's as though your boat has spent half of its life outside European waters. Before you get too excited, the VAT reduction applies to leasing repayments and not to a purchase. The financing is calculated on a tax-inclusive price eg: €600,000 for a boat which has an ex-VAT price of €500,000 where the VAT rate is 20%. It's worth noting that despite the concerns of some sailors, at the end of the lease period, the VAT has indeed been paid as far as all EU countries are concerned.

It's probably worth putting in a quick reminder here: What is the principle of leasing? The French definition is very succinct: it's a rental with a purchase option. A financial company purchases the boat which you wish to have, and rents it back to you against monthly repayments. At the end of the lease period, you have the option of handing back your boat to the leaser or exercising your purchase option. In sailing, as against in industry or the automobile sector, the purchase option is pretty much automatically in the contract (check when you are signing) and the value of the purchase option is extremely low, usually around 0.01% of the original price. Throughout the length of the finance plan, you are the renter and not the owner of the boat. This is an important advantage for many taxpayers as it is not considered as part of your personal wealth, which can be very useful as far as taxation is concerned. All EU residents are entitled to this.
Although the tax authorities assume that your boat spends 50% of the time outside European waters, there is a second option. You can opt to prove that you are always outside of the European zone. Either you leave immediately to sail around the world, or you base your boat outside the EU. In this case, the VAT levied on your repayments will be 0%. This includes the first, heftier repayment, which is not negligible as even with a 10% rate it will be a considerable amount. You will though need to justify this straight away and throughout the period that you wish to take advantage of the 0% rate: mooring bills, fuel, logbook, photos... keep everything religiously and send copies each year to your financial institution.
Depending upon the length of the loan period and the amount of your initial payment, the reduced tax rate can actually more than compensate for the interest rate charged on the lease deal. It's sometimes difficult to appreciate, but the combined amount ...