The industry now seems to have two types of individuals who decide to take up the challenge of working on a yacht. There are careerists who have come from maritime colleges and intend to climb the ranks to be captain, chief engineer or purser one day. The second type lie at the other end of the spectrum and are the free spirited who have fallen into jobs on yachts after finishing a year travelling or a season in the Alps.
Whatever type of person you are it is important to make the right decisions early on in your career as this will ultimately affect your ability to progress financially in the long term. Just as there are two types of people who venture into yachting, there are undoubtedly two trains of thought when it comes to tax & mortgages.
Until recently there has been the idea that when you join a yacht you should set up an offshore account and become non-resident. Most of the older community still believe that they are somehow outside the law when it comes to tax. There are a significant number of British yacht crew who do not file an annual return and instead choose to be non-resident. The reason they make this decision is usually because this was the norm when they entered the industry.
However the industry has now changed so much that those entering instead ask about tax first and ‘currency accounts’ second. Those who are newer to the industry and have come through maritime training academies tend to be a lot more tax & finance savvy. Both schools of thought have arguments to support their opinion.
The main problem with choosing not to file an annual return and be non-resident is that there is always the worry that you might do something that will result in you getting caught out. The majority of crew that opt for this route simply leave the UK and fail to file the correct paperwork upon leaving, instead choosing to listen to the advice of their peers when it comes to residency laws, hoping they are ok.
Non-residents generally choose to leave their salary untouched in offshore accounts due to the fear of moving it and creating unnecessary attention. This type of account typically does not offer interest on the reserves held in it as the interest is paid to the jurisdiction where the bank is based to afford them transparency. However thanks to the OECD & Automatic Exchange of Information transparency is over. Furthermore they are actually losing money as their savings are no longer appreciating inline with inflation.
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 provide a tax number and country of residence. Those who choose to remain non-resident are quickly finding that they no longer meet compliance with their bank and are having to become resident once more in order to preserve their accounts.
Property has long been the staple for investors who work in the industry. There is no doubt that before the crash in 2008 you could find competitive offshore mortgages that did not require you to provide proof of earnings in the form of an SA302 letter. However the pool of offshore lenders has significantly decreased in the wake of the crash. The rates and the size of deposit that these lenders now offer makes their products very unfavourable to anybody who is looking to build a buy to let portfolio.
Additionally, offshore investments have always provided non-residents with an option to appreciate their capital. Although with the advent of the Offshore Disclosures Facility clients who could previously hide these investments are no longer able to do so once again forcing them to become resident.
Many crew who choose to be non-resident and not file often do so because they are unaware of how easy it is to address their situation. The Seafarers Earnings Deduction (SED) allows British crew and EU citizens who are residents of the UK to claim 100% tax relief on their earnings.
Once you have filed and become resident again you can access all the same financial products somebody living and working in the UK can. This means that suddenly ISA’s, savings accounts and mortgages at preferential rates are all an option once more. When you look at the argument for being non-resident in financial terms suddenly it no longer makes sense.
All of the ongoing changes mean that at some point soon those who are non-resident will have little to no access to financial services or products. It is our opinion that most often fear, as well as poor understanding of what options are available, keep clients choosing to be non-resident over opting for the far simpler process of declaring their 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 have financial peace of mind without having to give over their hard earned money to the tax authorities.
If you would like further advice on any of the points raised in this article please feel free to email me on the link below:
Tax Advice – Click here
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.