Most of us know people that own classic or vintage cars. Some are serial collectors; others just have one or two classic cars. Many people have just one classic, their pride and joy. The director of this website, Ashley Roberts-Clark has one acquaintance that owns a 1952 XK 120 Roadster, another an Aston Martin DB5 and another a 1965 Mercedes 230 SI as well as several clients owning classics such Morris Minors, E-type Jags, Morgans, a Ford Mexico, a Ford Fiesta XR2i and even a Ford Capri.. There are also plenty of T1 (split screen) and T2 VW Campervans on Cornish roads. Indeed, Ashley states that his dream car is a 1956 Porsche 356 Speedster and he knows where one is currently being refurbished but cannot afford to buy it.
Have you ever wondered why TV programmes such as ‘Wheeler Dealers’, ‘Car SOS’, ‘Shed & Buried’ and ‘Bangers and Cash’ are so popular?
- Is it because people want to turn heads when they are driving? Yes.
- Is it because people buy the car of their childhood dreams when they can afford to? Yes.
- Is it because some people like tinkering with real engines (not computer programmed cars)? Yes.
- Is it because they may also be tax effective for Capital Gains Tax and Inheritance Tax planning? Maybe, but the following may turn more of you towards considering classic or vintage car investment.
Insurance Definitions
Classic car insurance is often cheaper than standard car insurance because it is assumed that you will not drive your car as often. They usually have 4 or 5 definitions and age brackets such as:
- Veteran Car – pre-1919
- Vintage Car – 1919 to 1930.
- Post Vintage Car – 1931 to 1945.
- Classic Car – 1946 onwards.
- Modern Classic – 1980-2000.
HMRC Classic Car Definition (the definition that matters)
- HMRC does use all the above insurance definitions, it merely defines a ‘Classic Car’.
- HMRC defines a Classic Car as any car that is 15 years old or older and with a market list price of £15,000 or more and has also started to appreciate in value..
- This means that the car has completed its value depreciation stage when it is driven off the forecourt and instantly loses value over the years/higher mileage etc., but then after 15 years or so it starts to appreciate as it starts to become rarer.
Road Taxes and MOT Benefits on Classic Cars
- MOT Free: If your classic care was registered over 40 years ago, it no longer needs a yearly MOT.
- Road Tax Free: If your classic car was registered over 40 years ago as at 31/12/XX of that calendar year, in the following calendar year from 1st April, your classic car becomes road tax free too.
- E.g., for this year, if your classic car was registered before 1 January 1984 then it becomes Road Tax free from 1 April 2024.
- You must still register your 40 year old car for Road Tax each year even if there is no fee to pay.
Higher Taxes on Investments – We Need To Plan
- The capital gains tax annual allowance reduced from £12,300 (tax year 2022/23) to £6,000 (tax year 2023/24) and falls again to £3,000 (tax year 2024/25).
- The inheritance tax nil rate band has been frozen at £325,000 since 2009 and will remain frozen until at least 6 April 2028 (at the earliest).
- It is time for us all to invest as wisely and tax efficiently as we can, use all our tax allowances and invest in a tax efficient manner?
Tax Breaks on Vintage and Classic Cars: why is it worth considering a classic car investment?
A. Capital Gains Tax (CGT) on Classic Cars:
- Realised gains/profits when you sell a classic car are capital gains tax free.
- Transfers of ownership of all assets between spouse/civil partners are already CGT free anyway but If you transfer ownership of a classic car to another family member (e.g., son/daughter), it is also capital gains tax free unlike other investments transferring ownership.to other family members that are taxable.
B. Inheritance Tax (IHT) on Classic Cars:
- Whilst gifts of classic cars to another family member (not spouse/civil partners) are CGT free, they are not free of Inheritance tax.
- They are potentially exempt transfers (PETs) and are IHT free if the person transferring the car lives for 7 years after the gift of the classic car.
- If the person transferring the car dies within 7 years after the gift of the classic car, the value of the classic car (at the time of transfer) is included in the estate for IHT.
- Vintage Cars (old and unique cars) may however, may also become IHT free under ‘Heritage Assets’ rules.
C. Inheritance Tax (IHT) on Heritage Assets: we have already stated that Heritage Assets are IHT fee.
- UK law defines a Heritage Asset as having a “pre-eminent national scientific, historic or artistic interest” to National, Local Authority or University collections e.g., National, Local Authority or University museums.
- Vintage or history making cars may be included in ‘Heritage assets’ if they are worthy of interest from the above as well as the owner making undertakings to:
- Look after the heritage asset.
- Make the heritage asset available to the public (for free or a fee)
- Keep the heritage asset in the UK.
- Photographs of the heritage asset can only be taken with the owner’s permission.
- Some vintage or history making cars may become IHT free if they meet the above criteria to become a Heritage Asset.
This is why for some it is already worth considering investing in a Classic car for real capital gains tax saving reasons as well as some potential inheritance tax saving options.
Perhaps it is worth us all shopping around now at even a £2k to £10k purchase level to keep until the car qualifies as a Classic car?
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