Family offices may encounter a wide range of VAT issues, due to the diverse nature of their activities. Failing to consider the VAT position can result in significant unexpected costs, so reviewing the VAT implications before starting any new activity is important.
Here are our top five VAT issues for family offices, which we will be discussing in a series of articles in the coming months.
1. Business or private?
There is often a fine line between activities carried on for a business purpose (within the VAT system) and activities which are private or non-business (outside the VAT system). Take, for example, an individual with a collection of fine art, who regularly buys and sells pieces. At what point does a private interest become a business activity?
2. Agent or principal?
High net worth families often buy or sell goods or services through an agent, for reasons of convenience or to protect their identity. The VAT rules surrounding agents can be complex and often raise questions concerning who can reclaim VAT, who should register and account for VAT, etc. Understanding how VAT applies to your arrangements is vital.
3. Real estate and construction
VAT can be a major cost when buying or selling real estate or undertaking construction work. Careful VAT planning can often reduce or eliminate the VAT cost. For example, there are extensive zero-rate and 5% reduced rate VAT reliefs available for residential construction work.
4. Movement of goods
Moving goods from one country to another can trigger significant VAT charges, even if ownership does not change. Goods entering the EU are usually subject to import VAT and customs duty. Moving goods within the EU may also trigger a VAT charge. For example, sailing a yacht into EU waters, could create a major VAT cost. Use of the customs duty and VAT reliefs available should always be considered before the event.
5. International services
It is often thought that services are VAT-free where the supplier and customer are in different countries. However, the rules are not that simple. Take, for example, a UK service company recharging costs to an overseas principal. It may need to charge 20% VAT on some or all of the services. Sensible planning can create large VAT savings.
Watch out for our articles which will explore the above issues in more detail. If you would like to discuss the above or any other VAT issues , please contact our family office VAT specialist Robert Facer