By definition, Capital Gains Tax (CGT) is a tax on the profit that you make when you sell, or dispose of, an asset that has increased in value.
Having invested in a classic or vintage car, you may find that its value increases during the course of ownership. This is in contrast to most standard motor vehicles which tend to depreciate over time.
So, the question then follows, is CGT payable upon the disposal of a classic or vintage vehicle?
Capital Gains Tax on a classic car…to pay or not to pay?
Unlike other types of investment, the profit you make upon the disposal of a classic car does not generally attract CGT.
This is because they are classed as a ‘wasting asset’; in other words, an asset that is estimated to have less than 50 years’ worth of use remaining. Even if the vehicle remains in existence for a period in excess of those 50 years, the same exemption applies.
However, when determining whether or not CGT applies, the purpose for which you use the vehicle must be considered.
It’s worth bearing in mind that where the car has been used for the purposes of a business and tax allowances have, or could have been claimed on it, the exemption would not apply. Tax would, therefore, be on due upon disposal of the asset.
The exemption applies to all motor vehicles which were constructed, or have been adapted, to carry passengers. The exception to this rule is where the type of vehicle is not normally used as a private vehicle and is unsuited for such use.
Normal motor cars are, therefore, exempt from Capital Gains Tax (CGT). This includes vintage cars of this type. The types of cars not included in this exemption are;
- taxi cabs
- racing cars
- single seat sports cars
- vans, lorries or other commercial vehicles
- motor cycles, scooters or motor cycle/sidecar combinations
Where a motor vehicle is not CGT-exempt as a passenger car, it is nonetheless regarded as ‘machinery’ for CGT purposes. Under the ‘machinery’ exemptions, it is still treated as a wasting asset.
In these circumstances, as aforementioned, a chargeable gain will only arise where tax allowances were, or could have been claimed as part of a business use.
Don’t get caught out…
It is clear that this type of investment is appealing. In fact, it is particularly so when you consider that some other investments can attract capital gains tax at 20%, or even 28%.
However, whilst gains are not chargeable to tax, any capital losses arising on such an investment are not eligible for tax relief. Furthermore, it’s worth considering the cost of maintenance and insurance etc. before purchasing, as these are not always insignificant.
Extreme care should be taken that such cars are held for ‘investment purposes’ only. If you buy and sell cars too frequently, with the intention of making a profit, HMRC may deem that you are ‘trading’. As a result, HMRC will tax any profit that you make as if it were income.
How can George Hay help?
Whether you’re an individual or running a business, Capital Gains Tax should be an important consideration because it often involves large sums of money.
Our specialist tax advisers can help you to understand and plan effectively for any future liabilities and will identify opportunities to minimise your tax bill by taking full advantage of the reliefs available to you.
To speak to one of our professional tax experts about CGT and tax planning, contact us today.