This article discusses the best way to share the costs of co-owning a boat, car, plane or any other type of asset. Often problems are encountered when transferring private assets such as these or being hit with a large bill for inheritance tax. As boating is a popular past time of the older generation I've focused on this throughout my article although similar laws also apply to different assets. When we change direction in life, perhaps we go our separate ways from loved ones or someone passes away we need to think about the implications of these events and how this will affect any joint agreements we entered into. It may be we're getting to the stage in our lives that we're not using the toy which once gave us so much pleasure and now we want to pass that onto to our siblings for them to use.
It is no secret that if you think of the UK for boating and marine pastimes often Hampshire comes to mind. Water sports in particular are popular with over ten percent engaging in seaside ventures. The British as a nation own over one million boats which explains the figure of over seventy thousand registered sailing yachts.
The rising costs of becoming a boat owner have become all too clear for those with enthusiasm to get sailing on the high seas. Many skippers are choosing to share their passion by splitting the cost of owning a boat with a friend or even linking up with like minded individuals and forming a syndicate.
Management of private possessions are including but not limited to boats and classic cars which there is a strong collection of at in Hampshire because of a well known Motor Museum. The UK currently has 6,000 owners of light aircraft and it also common for private ownership of ski chalets sharing the cost between friends and associates.
It is often a concern that people entering into a partnership for a private buy will often put the legal consequences to one side. It is advisable to think clearly before entering into any joint ownership and to use due diligence with reading over a legal contract before paying for anything upfront.
Ironically enough it is not the people entering into a joint deal that are the cause of any problems. It is often the extra person involved i.e a husband or wife that in the event of divorce can cause questions of ownership.
Also, people entering into an agreement should consider any unplanned events. Large Value Assets and Older owners should consider the effects of inheritance tax of their property in the event in the event that the owner passes away.
Your Legal Advisor will ask you to consider a few events such as what you plan to do when you sell. You may have to sell due to circumstances, age, finances, moving house.
Also what happens if the sale is due to divorce, or a requisition such as bankruptcy or death?
You will also need to consider how you will be able to realize your existing share. Complications include appreciating the value of the share for example of a plane purchased for £500,000 and for examples sake is still worth £500,000 to your estate. The complications come when if you enter into a joint sale and you have a £250,000 share of the plane. The new buyer is unlikely to want to pay £250,000 for half a share of the plane. If you entered into the joint ownership with a number of people it may work out even worse as the new owner may want different usage requirements for the plane than what the previous owner was happy with.
The situation becomes more complex when you consider if the current owners have first refusal and at what cost. A couple of questions are raised such as should an insurance policy be put in place in the event of death of a partner? How much notice needs to be given by someone leaving the partnership and what, if any costs would be incurred? Its often a couple of friends grouping together that have left their estate to the children who may find they have a usage disagreement.
The vital factor to consider for older owners is the best way of tackling inheritance tax in the event you pass away. For example the cost of a yacht can be anything into six figures upwards and the implications need careful consideration.
One way of tackling problems of inheritance tax is to give your asset away although this isn't always the best solution as you purchased the yacht or motor car the last thing you want to be able to enjoy it!
Ironically enough your asset can be given away as a gift and is above board legally by the tax authorities providing it meets certain criteria.
A gift which is not fully used by the recipient and excluding the original owner is what is know as a gift with reservation of benefit. Although those where a benefit is reserved are still considered forming part of the estate for Inheritance Tax Purposes.
As an example if you share usage of your boat to a relative such as your daughter or son but still continue to use it, this would be classed as a gift. The fact that it has been given away nominally doesn't count for anything in the eyes of the tax authorities. It is often misunderstood that you could escape these rules by being a guest of the new boat owner.
When you continue to use your gift after you have given it to your child but continue to pay a market rent there is no reservation of benefit. This can work well for older asset owners who us their yachts, cars and planes less as they get older.
It is often worth noting that Taper Relief does not apply to the value of the lifetime gifts. Defined TR reduces the amount of tax which is added to the lifetime gift which the original owner has failed to survive by the required 7 year period. In the event that there is no tax maybe because the value of the asset within the nil rate tax band at the time of death, then there is no tax relief.
The best solution is often to give the asset to your beneficiaries and they will accept payments each time you use the boat or car. This can work as a solution for older people who are using their assets less and less. The calculation is then made through expected age until death and rental assumptions.
Boat Owners should consider that this can work as a flexible arrangement and that you should keep a note that means the tax authorities can validate your expense. It is worth considering that for a cost i.e £5k you could hire a boat at different points throughout the year. You should consider this as a gross cost and you will still have to continue to pay servicing and upkeep fess which could further reduce this cost.
This can work well for the mature client who only uses their boat a few times a year and would be presented with a large inheritance tax bill instead of minimizing costs through rental. This way their children will have the full benefit of the gift while they can still enjoy their boating adventures!
The joint ownership of assets such as yachts is often a cost effective way of sharing the costs of such a hobby. There are, however, practicalities that need to be thought through in order to avoid upsetting and expensive disputes at some future date.
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