‘There is nothing – absolutely nothing – half so much worth doing as simply messing about in boats.’ (Kenneth Grahame, ‘The Wind in the Willows’)
I recently met someone who lives on a Dutch barge moored on the Thames just East of Tower Bridge. Idyllic lifestyle? Tick. Beautiful view? Tick (apart from when the tide’s out – all that mud). And tax advantages? Absolutely, but I’m sure Zach’s too cool to be swayed by that. After all, he’s living the Alternative Life.
Us landlubbers who have more in common with Mr Cohen, Monty Python’s sea-faring accountant, than Captain Pugwash might appreciate a run-down of the less romantic incentives for choosing a home on the rolling deep.
A ‘qualifying ship’ is zero-rated for VAT purposes, which means that it’s VAT-free when you buy it in the UK. And when you want to do some work on it, unlike a conventional house, supplies of most parts and equipment are also VAT-free, as are repairs, maintenance works, modifications and conversions.
However, before you sell your semi in East Cheam and start scouring the small ads at the back of Waterways World, you should probably acquaint yourself with the definition of a qualifying ship:
A ‘ship of not less than 15 gross tons which is neither designed nor adapted for use for recreation or pleasure’.
Gross tonnage is a measurement based on volume, not weight, and the method of calculation is not set out in the VAT legislation. A tax tribunal has decided that the reference to gross tonnage means gross tonnage calculated under the Merchant Shipping Acts so far as is possible. The calculation has to be produced by the person making the supply to support the zero-rating of it.
Where gross tonnage has not been certified under the Merchant Shipping Acts, the method of calculation specified in the Merchant Shipping (Tonnage) Regulations 1997 (made under the Merchant Shipping Act 1995) is applied by HMRC guidance for VAT purposes, in relation to ships of less than 24 metres in length. HMRC have set out a simplified formula for ships of 24 metres or over which they claim to have established by agreement with the relevant trade associations but otherwise have given no explanation of how it has been arrived at.
Gross tonnage is calculated by determining the ship’s enclosed internal space in cubic metres and multiplying it by 0.235 (in the case of a ship of 24 metres in length or over) or by 0.16 (in other cases). So 15 gross tons is, technically speaking, well, biggish.
Vessels of less than 15 gross tons can never be zero-rated, so most narrow boats, even if they are used as a home, will be standard rated.
In the case of The Kei, the High Court decided that a replica Dutch barge was zero-rated because it was designed to be lived in as a permanent home (together with some business use), which was not use for recreation or pleasure. Stung by the loss in favour of the owner of The Kei, marine engineer, Lieutenant Commander Stone, HMRC has sought – rather meanly, in my view – to limit the scope of the decision by imposing an additional (and unjustified) condition that a purchaser must intend to use the ship as a permanent residence in order for it to qualify. Shades of fiscal piracy, methinks.
According to Zach, the member’s forum of the Barge Association is awash with comments and queries on the subject. Hardly surprising in the circumstances. After all most of these boatey people just want to get on with their care free life sunbathing on the poop deck rather than scrutinising the small print of tax legislation.
Houseboats are covered by a separate zero-rate. For VAT purposes, a houseboat is a boat (whatever its size) which is designed or adapted for use solely as a place of permanent habitation and which does not have, and cannot be fitted with, a means of self-propulsion.
Nothing like a cold shower from HMRC when you’re about to embark on your new bohemian way of life. But if it’s any consolation, provided that oars don’t count as a means as self-propulsion you should be OK with a live-aboard trireme, even if it’s tiny.
Needless to say, the rules in other EU Member States are different. Plain sailing, it seems, is not a meaningful concept in the world of taxation.
P.S. You can read Colin Stone’s account of his battle for zero-rating of Kei here.
Well to me, it is.
Tax lawyer specialising in business tax, SDLT and VAT