Paying the running costs of a boat in return for using it

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kcrane

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This idea has probably been debated before, but I don't recall. Maybe the current economic climate lends itself to the idea.

Imagine there are two people. One plans to buy a boat, the other wants to sell. For the sake of debate I'll assume the boat is £250k's worth of a reasonably modern model from one of the well known manufacturers.

Mr Buyer, an experienced boater, can afford the annual running costs but thinks the market downturn will continue into 2009 and depress pricess further. So he is holding off buying.

Mr Seller is moving out of boating, but is not desperate, he isn't forced to sell. He thinks that the current market conditions are temporary and that prices will return to more normal levels given a year or so. What hurts is the annual costs of having a boat sat in a marina. At circas £15k for marina, insurance and maintenance costs it is a gamble whether to wait it out or drop the price.

If Mr Buyer and Mr Seller get together and agree:

Mr Buyer can use the boat
Mr Buyer will pay Mr Seller a monthly amount

can it be a win/win?


Thoughts:
Mr Seller will want to know Mr Buyer is competent
Mr Seller will need to know the boat is insured
Mr Seller needs to believe the income offsets the wear and tear & emotional attachment
Mr Seller needs to accept the boat isn't instantly available for sale
Mr Seller needs to know Mr Buyer has the funds
Mr Seller will want a deposit
Mr Buyer wants to avoid lump sum payments, in case the boat sells
Mr Buyer will want a deposit to be held in 3rd party hands
Mr Buyer wants the boat to be insured, in case he dings it (or some-one else does)

Questions:
How do you avoid it being a full-on charter, triggering the need for the boat to be coded?
Not a problem if it is coded.

How do you avoid the income to Mr Seller being taxable?
Not a problem if the amount Mr Buyer is paying matches the genuine running costs as there is no profit.

Thoughts?
 
Sounds to me like a simple boat partnership where the terms of use and contribution of each partner are agreed in the contract. Tax won't be an issue if it is not a commercial enterprise, nor will coding.

Difficulty will be in agreeing equitable terms and the seller/current owner preserving his interest and title to the boat.
 
thats been done recently in my Marina. A) had his boat for sale (though he did not want to sell it, needed relief from the running costs). Now boats arent exactly selling like hot cakes at the mo so : local man B) agrees to pay annnual running costs berth, maintenance, etc for use of the boat.

Dont know how they have agreed upon how much B) uses the boat whether it is unlimited or not and indeed how much A0 will use the boat I shall see if I can find out
 
[ QUOTE ]
How do you avoid it being a full-on charter, triggering the need for the boat to be coded?
Not a problem if it is coded.


[/ QUOTE ]
I'm no expert but I wouldnt have thought that the boat would need to be coded. Its just a short term rental - the insurance cover would determine if coding was necessary - IMO of course.
 
I think it depends on how you word the contract/agreement.

if you say that the user is paying for the berth and maintenance he actually isnt paying to use the boat, you are letting him do that for free, so no need for coding.

You would just have to word things very carefully.

Either that or have your berth and mechanic coded of course /forums/images/graemlins/grin.gif
 
I half expected a few quick replies explaining why it was unworkable. Quite encouraged so far. I may be tempted to declare an interest in being.... Mr Buyer /forums/images/graemlins/smile.gif

It is a thought that struck me while selling the last boat. Once I had emotionally dis-engaged it became just an asset that I wanted to realise at a reasonable price, and the continuing running costs somehow became more painful than their actual cost would suggest they should. I'd have been interested in someone keeping the boat in use, better for it than sitting idle, and if they picked up some of the costs, so much the better.
 
I can't answer for boats - but if the parallel case applied to an aircraft, then it would certainly be classed as hire and reward as you would be allowing the use of your boat in exchange for 'valuable consideration' - which is payment for the hire, fuel, maintenance fees - even favours. The arrangement would thus be subject to all relevant commercial rules.

I suspect something similar will apply to boats - it would be hard to see how different elements of the Dept for Transport's responsibilities would be interpreted radically differently.

Not sure where you are based - if Europe, rather than UK, then it would be local rules which are likely to be similar, but with significant local differences (at least if aviation is any guide - and in Europe we already have a single European regulator).
 
I suppose the buyer could purchase it, pay the agreed rental fee as deposit, and leave the balance outstanding. Both buyer and seller then have an option for the boat to be sold back to the original seller after 12 mths at the same amount as the remaining consideration, and the right to off-set the sale and purchase fees, leaving a nil balance.

If the seller only wants the costs covered, it's much easier, he can just lend the boat FOC, therefore no consideration.

I think it's too risky for the seller in any scenario, unless the buyer is a trusted friend.
 
I think if done as you describe it would be charter (so coding needed) and taxable income for Mr Seller

Seller could sell 1/64 share to buyer, with a repurchase option for £1 backed by a signed undated BoS executed by Buyer and held by seller, so bulletproof for Seller. Then do a boat share agreement that says Buyer gets 90% use for the next year in return for paying £X of running costs. That wouldn't be charter nor taxalbe income for Seller, yet has the economics you want
 
If done without Mr Buyer having an equity stake on the boat (i.e. without owning it) then I believe it would be considered a charter. The boat would need to be coded and insurance would need to cover commercial ops.

However, if Mr Buyer took an equity stake in the boat and paid his share of the costs then it would just be a shared ownership and providing insurance covers both owners then it should be very simple and straightforward.

The difficulty comes if Mr Buyer takes an equity stake and pays more than his share of the expenses... which is probably what you would want to do... then it is open to interpretation by the HMRC/MCA etc as to whether it is a genuine shared ownership or a disguised commercial operation. I am no lawyer but you may find a way of setting ithe agreement up between you to be acceptable to the authorities. If it were me however I wouldn't risk entering in to such an unclear arrangement for fear of the consequences should it be deemed a commercial operation at a later stage especially if there was a accident which is when the authorities would start to look deeper, as would the insurance.

I think your idea is a great one if you can find a way to make it clearly and openly a non-commercial operation... I am not sure that is so easy to do.

BTW... AFAIK shared expenses is always deemed a commercial operation by the MCA unless the expenses are apportioned according to the ownership... remember the sandwich incident with Earthrace... rediculous I know but that is how they interpret the rules.
 
Um, will continue to ponder how to make it work, however I wouldn't rule out the boat being coded and insured. It is an extra hurdle, but not insurmountable. Tax issue goes away if there is no profit I guess.

It feels to me to be genuinely non-commercial being not for profit. The problem comes if the authorities choose to deem it commercial for their own reasons.

How does this play? In my example the costs would be fairly equal as at this level of boat the annual costs could be roughly:
Berth £10k
Insurance £3k
Maintenance £3k
Interest on loan (or cost of money if not a loan) £17,500

So if one party agreed to pay berth, insurance and maintenance (£16k) and the other agreed to pay the cost of money (£17.5k) then they have a 50/50 deal.
It doesn't seem unreasonable that the person with the cost of money commitment should have the asset in their name as security.
 
I certainly follow your logic and agree with everything in principle but there is one fundamental thing that you have said that I think may not be 100% true...

You do not need to make a profit for it to be considered a commercial operation. You just need to accept payment of some kind no matter how small... just look at Earthrace... they were offered sandwiches for payment for a ride in the boat... A SANDWICH!!! There is no way they could make a profit from that!!! But because they had accepted payment then to the MCA it was commercial and they were threatened with up to a £50,000 fine! Talk about rediculous - but that is how they work!

I wish you every bit of luck but you might want to be certain of your position if you want to avoid that kind of trouble in the future. You only need someone to get the hump with you for some reason or other, know your situation and tell the MCA and you could have a few problems...
 
what a great idea - I have a Sealine F33 in Mallorca, up for sale but if someone wants to share costs and usage, feel free to PM me!!
 
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