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Renting out and learning in an N reg aircraft in the UK

Hello EuroGAers,

I have opportunity to purchase a great N reg aircraft in the UK (VAT paid basis) and would be purchasing it with another person. The other person has gotten multiple licenses and ratings but I am only a PPL student. The reason this would be a good outcome is because the aircraft we’d buy is the one I’d like to fly post PPL. This will be in a trust given neither of us are US citizens/green card holders. We will want to rent/hire out the plane on a dry rate basis to a small group we are putting together (they would pay a small monthly fee in addition to hourly rate).

I have a few questions:

1. Can we legally rent out the N reg in the UK on dry hour basis? Are there any issues around this? I heard they cannot be in the public transport category hence cannot be rented out.
2. The aircraft engine is over 12 years old, despite only 100 hours since overhaul. Does that mean I can’t rent it out? Seems to be some sort of EASA rule.
3. Would we need to charge VAT?
4. Would I as the PPL student owner be able to continue training in the newly owned plane with a regular instructor? (i.e.: not an FAA instructor) – I heard the solo may be a problem.
5. If one of the renters crashes the plane and hurts himself/others on the ground, where does the liability lie? Is it with the ultimate owners?
6. Can anyone recommend any good solicitors for GA who can help us with some more questions and putting together the equity and rental agreements?

Thanks a lot

United Kingdom

The general principle is that the lessor has to charge VAT on the rent (all amounts: monthly and hourly). However, if the lessor’s yearly turnover is less than 85,000 £, he is not obliged to charge VAT. Making use of that “small business” exemption means the lessor cannot reclaim any VAT on purchases (maintenance, upgrades, …). I’m not sure in the UK, but in Luxembourg such small businesses have to send yearly to the VAT tax office their annual turnover (just that one figure: what was the turnover in the finished year).

See:
https://www.gov.uk/vat-registration-thresholds
https://www.gov.uk/vat-registration/when-to-register

Below 150,000 £ annual turnover, you can join the “VAT flat rate scheme”, and apparently stay on it until your annual turnover exceeds 230,000 £. You have to apply for it. It means you collect VAT at a reduced rate of 9.5 %, but still cannot reclaim VAT on purchases.

See https://www.gov.uk/vat-flat-rate-scheme/eligibility

The normal “full” system, which (not 100 % sure for the UK, but I expect) you can elect to join even below 85,000 £, is that you collect VAT at the normal rate of 20 % and are entitled to reclaim VAT on purchases, insofar as the purchases serve the purposes of the business.

I understand there will not be VAT on the purchase of the plane; so I guess you will be better served by the small business exemption, if you qualify for it, since the “big ticket” of VAT on the purchase of the plane is not on the table.

Broadly speaking, you can setup things in two ways:

  1. The airplane is owned, and rented out, by the actual two natural persons, or a tax-transparent entity (e.g. a partnership). You have your agreement on splitting of costs and revenue. Usually, in this scheme, the natural persons don’t pay themselves for the usage of the plane (but it may have an impact on sharing of costs in your private arrangement between owners). The revenue is taxable, the share of costs that is attributable to the revenue activity is deductible from the taxable revenue base. I’m not a UK tax expert, but I expect the system to broadly be that fixed costs will prorated by (hours flown by lessees)/(total hours flown), and any cost specifically attributable to personal use, or rented out use, will be non-deductible, or fully deductible, respectively.
  2. You setup a tax-opaque legal person (usually a company) that runs the activity. Everybody pays rent for use of the plane, even the shareholders [let me stress that: the shareholders cannot use the plane without paying rent, except in service to the company such as e.g. ferry flights between maintenance and base]; there may obviously be different hourly rates based on different monthly subscription amounts and/or rebates for buying more than XX hours in advance. If VAT applies [that is, above the 85,000 £ threshold, or the company elected to have VAT apply below the threshold], it applies on all rents, even the ones paid by the shareholders. But, since all the activity is commercial, the company can deduct all VAT on all purchases (assuming it makes only purchases in service of the business), in the normal system.
  3. You can imagine the company being share owner, and the natural persons share owners, and the natural person owners not having to pay the company rent for using the plane [since they own it]. The costs are split “fairly” between the company and the natural person co-owners. The question of the fair share of costs, and share of ownership, for the company can become thorny, especially since it will be examined retroactively. But, since all the activity is commercial, the company can deduct all VAT on all its (share of the) purchases (assuming it makes only purchases in service of the business), if it is running under the normal system. The private owners cannot deduct any VAT [no commercial activity].

The above is the theory. In practice, if the owners/shareholders fly a sizeable portion of the hours and/or if the business doesn’t advertise itself “enough” and/or …, then the tax office may take the view that by qualifying it as a business, you are performing fraud and adjust your taxes accordingly. However, in your case, since you will not have reclaimed VAT on the purchase of the plane, assuming the costs, rents, etc are shared fairly, and the owners pay “sufficiently high” rent, I don’t see what they could adjust. Pay attention to the notion that, if the company doesn’t advertise itself, and the plane has low use, the fact of “having the plane at your disposal at any time even though you don’t use it [much]” can be deemed as a “benefit in kind” for the shareholders, and may lead to a tax adjustment (if it was not declared proactively).

In summary, if the owners fly like 80 % of the hours, I’d not bother with setting things up too much. Just use scheme number 1 [I assume you will be below the VAT threshold]. If the owners fly like 20 % of the hours and the business will be profitable, I’d make the effort to set things up more.

Last Edited by lionel at 07 Jan 14:02
ELLX

Most of the questions are not specific to N-reg, they are also debated for G-reg, restricted CoFA, PtF aircrafts
- Can you fly it yourself? Insurance/liability?
- Engine, CoFA, PT category?
- pre/post-PPL training?
- Do you charge VAT?
- Can you rent it?

My gut feeling tells me: use exiting ATO aircraft for initial PPL training

Paris/Essex, France/UK, United Kingdom

1. Can we legally rent out the N reg in the UK on dry hour basis? Are there any issues around this? I heard they cannot be in the public transport category hence cannot be rented out.

Yes. Wet or dry. A school cannot do this but that’s for other reasons (the CAA will never let them). Between private entities, no training involved (other than check flights or training a group member) no problem. I used to do this and checked it directly with the DfT.

2. The aircraft engine is over 12 years old, despite only 100 hours since overhaul. Does that mean I can’t rent it out? Seems to be some sort of EASA rule.

Not relevant.

3. Would we need to charge VAT?

Only if the aircraft is owned by a VAT registered individual or corporate body. Details from Lionel above

I recommend not registering for VAT – see many past threads (search for the word VAT).

4. Would I as the PPL student owner be able to continue training in the newly owned plane with a regular instructor? (i.e.: not an FAA instructor) – I heard the solo may be a problem.

This is fine legally but the usual issue in Europe is finding a school willing to take on a customer aircraft. You cannot freelance-train any part of the PPL so you are wholly at their mercy. I did my JAA IR in my plane and found a school (since gone bust). The actual process is trivial but most are not interested.

5. If one of the renters crashes the plane and hurts himself/others on the ground, where does the liability lie? Is it with the ultimate owners?

The UK Civil Aviation Act makes the pilot and operator jointly and severally liable.

A limited company syndicate protects the other shareholders, with there being a residual (and unavoidable) theoretical liability that if the insurance is insufficient, the director(s) have not done their duty in getting sufficient cover. But a ltd co. raises the issue of Benefit in Kind (search for this – many posts) which is avoided fairly safely only if all shareholders fly the plane.

6. Can anyone recommend any good solicitors for GA who can help us with some more questions and putting together the equity and rental agreements?

I don’t know of any but if you need a lawyer then you have wrong people in the syndicate Search on the word “syndicates” and read the first hit.

Syndicates tend to work if

  • each member is sufficiently solvent to own the plane himself, but chooses not to, OR
  • there are so many members (say 30) that the whole deal is so cheap that nobody bothers to argue about anything

Most of the others work rather marginally, though it depends hugely on how the members were chosen. You don’t want members who can only just afford it – yet that is exactly the most likely applicant, obviously…

Many previous threads on this too… it gets harder if you have an IFR machine and are looking for IFR pilots.

use exiting ATO aircraft for initial PPL training

That is certainly the simplest but then you come out with wonderful currency on type, with the type being an old heap which you hope you will never fly again and certainly would not use to take a girl (or a boy ) to Le Touquet, never mind a bit further.

If I knew what I know now, I would have bought the TB20 and did the PPL in it. The slight problem is that no school would have touched it with a 20ft bargepole. And the insurance would have cost me about 10k. Whether this is actually going to work depends on the aptitude of the pilot. You could train ab initio in a PC7 if you selected the clients for aptitude.

Administrator
Shoreham EGKA, United Kingdom

Peter wrote:

Syndicates tend to work if each member is sufficiently solvent to own the plane himself, but chooses not to, OR there are so many members (say 30) that the whole deal is so cheap that nobody bothers to argue about anythingMost of the others work rather marginally, though it depends hugely on how the members were chosen. You don’t want members who can only just afford it – yet that is exactly the most likely applicant, obviously…Many previous threads on this too… it gets harder if you have an IFR machine and are looking for IFR pilots.

Lot of truth in that,

The issue I found with IFR syndicate is that old pilots have let their PPL/IR lapsed (to IMCr, or PPL or even LAPL for medical) long time ago and that super machine will stay just VFR

For PPL in own aircraft insurance cost and hassle you better have a Spitfire or Harvard, I can point you to the right place for this , in own aircraft, you should be able to clock 50h in next two months alone going to places and gaining as much currency and confidence as re-doing PPL?

If you buy an aircraft, you make a syndicate only if you can’t fly 100h/year due to your own time constraints, so you take someone to help engine/aircraft running and stay alive, budget-wise for you it will still be 100h/year

Many people syndicate while cheap for anyone not to care, don’t work neither, you always have a 1h/year guy who barely flies it but wants everybody to do the same…

Last Edited by Ibra at 08 Jan 17:36
Paris/Essex, France/UK, United Kingdom

Thanks to everyone for their kind advice – it is really very much appreciated.

Peter wrote:

This is fine legally but the usual issue in Europe is finding a school willing to take on a customer aircraft. You cannot freelance-train any part of the PPL so you are wholly at their mercy. I did my JAA IR in my plane and found a school (since gone bust). The actual process is trivial but most are not interested.

Peter is that the case, even considering the solo portion? I heard I would not be able to solo an N reg if I am doing the EASA/JAA PPL in the UK for some reason or other.

United Kingdom

Search for “student pilot certificate” (including the quotes i.e. for the exact phrase). For example this one.

I have never seen a completely conclusive answer to this puzzle, but there really appears to be no way to do the solo portions of an ab initio PPL in an N-reg, outside the US.

Well, there is an easy way: if nobody asks any questions In the US, the Student Pilot Certificate deals with the pre-PPL solo privileges. In Europe, a pre-PPL pilot has no “license” or “certificate”. He is merely enrolled at a school, and sort of “flying on the license of his instructor”.

In 2004 I was issued, by a UK based FAA AME, a US Student Pilot Certificate (which was invalid in the UK but nobody knew that ). I then did the FAA PPL in the UK, but using UK JAA PPL training as a basis so no solo flight was involved.

The FAR 61.3 concession (allowing an N-reg to be flown outside the US on any foreign license, in the airspace of the issuer of that license) is no good because, errrm, you don’t yet have a license.

Whether you train for a US license or a Euro license makes no difference AFAICT.

Administrator
Shoreham EGKA, United Kingdom

Peter,

Thanks a lot for your detailed post. It does seem to me like that sort of kills the dream of doing it in the N reg in the UK. I should probably look for a G reg instead I guess. Thanks for the honesty!

United Kingdom

Doing an ab initio PPL in your own G-reg won’t be a lot easier – it depends on finding a school willing to play ball. You should be able to find one, somewhere.

But not in a retractable etc. It is possible legally but if you can find one to take this on I will eat my oil filter

It was done far away abroad e.g. a load of TB20s were sold to Thailand and such, for ab initio PPL training.

Administrator
Shoreham EGKA, United Kingdom

Peter wrote:

It is possible legally but if you can find one to take this on I will eat my oil filter

Azur Sky (out of the UK but still EU) does this probably, I am not sure this is worth it to eat the oil filter from the old broken cylinder

Last Edited by Ibra at 09 Jan 10:28
Paris/Essex, France/UK, United Kingdom
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