Buying and operating a super yacht is not for the faint-hearted and there are financial pitfalls to avoid. Monaco-based brokers Yachting Partners International (YPI) has more than 40 years of experience in the industry and world-leading expertise, having advised generations of clients on buying, selling, managing and chartering their yachts.
They can recommend the industry’s most efficient specialist advisors and consultants to ensure you buy the right yacht for your needs, with the least amount of risk and using the best fiscal and tax structuring available. Here its director, Mark Duncan, gives his advice
Don’t cut corners with your yacht insurance – as well as third-party liability and protection and indemnity insurance (P&I), your cover should include the hull and machinery; tenders and toys; all valuables on board; and the crew. You may also want to get cover, including medical, for the crew’s families. A good crew is a yacht’s most important asset. Typically, expect your total premium to be 0.3% to 0.5% of the yacht’s insured value. Make sure you re-negotiate your policy annually.
It’s easier to get finance for a second-hand yacht with a verifiable history. If you buy new, carry out due diligence on the shipyard. The project could last up to four years so you need to be confident its finances are robust and it can deliver your technical specifications. Ask the shipyard for a refund guarantee, covering all instalments paid until completion. Ensure you are able to visit during construction – this should be a contractual agreement.
Never buy as an individual – ring-fence any liability by establishing a company between yourself and the yacht. If your yacht is involved in an accident, for example, the liability will be limited to the company which owns the yacht.
If you’re buying a pre-owned yacht, remember that an asking price is more often than not merely the starting point for serious offers. A good broker is invaluable when it comes to effective negotiation on price. Their knowledge of the yachts, their understanding of what else is on the market, what is actually selling and at what price, gives you invaluable information when moving to secure the best deal. Buyers are generally in a good position to take advantage of the surplus of inventory on the market, but only if they have the right person helping them through the process.
Think of yourself as a corporate entity, not as an individual owner – your yacht is a transient entity governed by the rules of many different jurisdictions depending on whether it is berthed or sailing at any particular time. Treat it just as you would any of your other commercial activities.
During the boom years, it was easy to get loan to value (LTV) ratios of 90%. Now, most lenders will only offer 50% LTV, though some will go to 70%. An alternative approach is to secure a loan with the yacht as security and linked to an investment portfolio – for example, 40% of the loan could be for investments made through the bank, meaning your net exposure is just 60% of the total loan. Private banks are the most willing lenders because they are keen to establish or expand relationships with ultra high net worths.
Do you really need a permanent berth? Whether or not you’re chartering, your yacht is likely to be based in the Mediterranean during the summer and the Caribbean during the winter. Home berthing your yacht has tax implications, which are unlikely to be advantageous.
When you have taken delivery of your yacht you should be covered by a warranty agreement of a minimum 12 months. But it’s worth bearing in mind that some shipyards now offer packages providing on-going servicing throughout its lifetime. There is an additional cost, but these can be worth considering; your relationship with the yard building your yacht should be collaborative rather than adversarial. The more you can make it like that the greater the benefits you’ll get back.
Know the tax history of the yacht before you buy it – any changes in usage will need to be verified as tax compliant. If it’s a new-build, beware of schemes to reduce your VAT liability – they were popular once, but the reality is if you are going to register your yacht as private and use it in Europe, you will have to pay VAT accordingly. Take advice from a corporate services provider at the outset.
It’s essential to have your own project manager. A good shipyard will have a first-class project manager, but you also want your own representative liaising with designers, marine architects, suppliers and interior fitters on your behalf. You need to be sure your project is getting its fair share of management attention and labour time and if the specifications change during the project – invariably they will – that this doesn’t derail the timetable or budget.
For more information on any aspect of yacht ownership, go to ypigroup.com
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