The hard facts about emotional investments

The core of an investor’s portfolio will generally be what might be called “sensible” assets, equities, property, commodities and such like.  Investors are, however, only human, and as such can be inclined to “mix business with pleasure” by making investments which are, at least in part, driven by emotion rather than pure financial logic.  There is nothing wrong with this, however, investors do need to remember that what may be a matter of emotion for you may be a matter of hard fact for other people, such as governments and, in particular, tax authorities.  It is therefore highly advisable to keep yourself well-informed regarding how they may view your most special investments.  Here are some points to consider.

Flying high

Owning a private aircraft can be extremely convenient and having a corporate jet at your disposal can be an economical and practical way to move key personnel from A to B.  These benefits, however, have to be set against the fact that the cost-effectiveness of these investments is determined, at least in part, by how they are taxed as has been demonstrated by the EU when it removed some of the VAT relief which was once available to people who bought aircraft.  In principle, it may be possible to have your asset earn its keep (or some of it) by leasing it out to others, however, this brings another set of complications, which would need to be investigated very thoroughly before deciding whether or not this approach was actually worthwhile.

Sailing the ocean waves

Yachting can be a very pleasant way to see the world, however, while going out on the open water may be a great way to clear your mind, it can also be a way to run into all kinds of tax complications and the more ports you visit, the more complicated it can be.  In addition to the tax on the yacht itself, you also have to think about its contents.  Carrying your favourite art on board may seem a great way to make your yacht a real “floating-home-from-home”, but it’s also a way to attract unwelcome attention from tax authorities.  Likewise, you may wish to bring your favourite jewellery pieces with you as you travel, so that you always look the part wherever you are, especially if you are attending smart events, but, again, tax authorities may simply view them as assets and remember, in this context, the term “jewellery” can even extend to functional items such as watches.  In fact, even items such as handbags and, possibly, clothes, could, in principle, attract the attention of the tax authorities.

Sensitive items

Sometimes an item’s worth is less about the materials and labour which are used to produce it and more about its associations and it’s probably fair to say that the older an item is likely to be, the more this is likely to be the case.  For example, from an objective perspective, many historic artefacts have no material value whatsoever, but from a subjective perspective, they are quite literally priceless.  Modern items can also be sensitive, albeit often for different reasons, for example, environmental concerns.  In such cases, your concern may be less one of taxation, since, at the end of the day, genuine errors in taxation are likely only to carry a financial penalty, and more one of ensuring that you have the correct documentation in place to show that the item was obtained in full compliance with the law and that you have the legal right to take it out of its country of origin as well as the legal right to take it into another country.  Always remember that purchasing an item does not necessarily entitle you to remove it from the country of purchase, if an item is deemed culturally (and/or historically) sensitive, you may need to obtain special permission.

If you need advice on how to improve your business finance please contact us.