Placing a yacht into charter management
Last updated: 29/11/2016
It is commonplace for yacht owners to place their boats into a charter program to try and offset the cost of ownership. This is a cost-effective way to own a yacht and the yachting industry has a couple of charter management programmes available. Yachting Pages Media Group with the help of leading charter management companies analyses these programmes to help an owner decide if placing a yacht into charter management is a good option.
The most common programmes are the ‘guaranteed income’ programme and the ‘performance’ programme.
The guaranteed income programme is offered mainly by large, well-established charter management companies and is popular for owners who want to have an ‘easy’ ownership experience.
The programme is structured so that the charter company pays for all the expenses including, insurance, berthing, maintenance and general operating. The owner doesn’t usually pay anything for the duration of the program and receives a guaranteed payment, which is paid monthly, and can be as high as 9% annually of the boats initial value. The program can vary from charter company to charter company but it usually lasts from 54 to 66 months, so the longer the term, the more guaranteed income you will receive as a whole.
Advantages of the guaranteed income programme
- Hassle free ownership with no maintenance or accounting
- Cost-effective ownership
- Guaranteed payment - No risk if the boat does not charter
Disadvantages of the guaranteed income program
- No control over maintenance for the duration of the programme
- Fixed return. No upside if the boat charters a lot and generates a large profit
- No tax advantage– Income is deemed passive under this programme
- Yacht may be unavailable when wanted by owner
When the programme expires, the owner can take full possession again and usually one of three things will happen. 1) Private use 2) Place the yacht in another charter programme or 3) Sell the boat.
The Performance programme is designed so the yacht owner receives most of the net charter income, and then the charter company bills the owner for its services. While this programme yields more income for the owner it requires a lot more personal involvement. Smaller companies tend to offer this programme because it represents less risk or liability.
There is typically a split of the charter income that usually ranges from 65% to 80% for the owner to 35% to 20% for the charter company. However it is important not to simply look at the split, but to consider all fees particularly booking commissions, as a more even split wouldn’t necessarily mean a smaller yield for an owner.
As this is an income-sharing programme, the owner needs to know what the potential costs for a charter will be billed to them, i.e. berth bookings, insurance and fuel costs.
Advantages of the performance programme
- Better yacht maintenance – Owner is involved on a monthly basis and is billed for services – maintenance is not discretionary
- Much higher financial return
- Owner is able to place the yacht as a business asset for substantial tax advantages
- Yacht will be in better condition at end of programme
Disadvantages of the performance programme
- No protection - If charter bookings drop off, the owner is still responsible for all the upkeep costs
- Owner has to be very involved in the operation of the yacht
This programme once ended, also gives three options: private use; another charter contract or a sale. However, bear in mind that as the maintenance is being done regularly and diligently, the yacht will be in good condition resulting in higher value.
Tax benefits of placing a yacht in charter
Yachts placed in charter benefit significantly from tax reliefs due to the tax rules around the purchase of business equipment. By placing a yacht in a charter management programme, owners are converting their yacht from a personal asset to a business asset, fundamentally a rental business.
Charter management companies structure the relationship in such a way so that the yacht is still fully owned by the owner, but they simply assist you in managing this ‘yacht rental business’.