Classic cars: a way to beat the taxman
So there is expected to be considerable interest in a Ferrari Testarossa coming up for auction in London today. But there’s an added extra interest – it was formerly owned by pop star Elton John.
The red 512 TR has just 2,100 miles on the clock and is expected to top £110,000 when it is sold by auction house COYS.
But the vehicle is just the tip of an incredible boom in sales of classic or vintage cars which have seen returns far outstrip most other types of investments in the last decade.
A wealth report from property firm Knight Frank reckons classic car prices have soared 395 per cent in 10 years. The FT-SE 100, in comparison, has risen around 94 per cent over that time.
Chris Routledge, managing director of COYS said: “Old cars have been a hedge against the recession and traditional investments and interest in them is growing significantly quickly around the world.
“Prices have rocketed and in some cases, like the Mercedes-Benz 300SL Roadster, the average global auction price since 2000 has increased by 300 per cent.”
“Similarly, the Aston Martin DB4 average global auction price before the recession was £135,000, but after the recession it went up to £207,000, increasing by 53 per cent.”
The latter may be soaring in price because of the James Bond connection, but canny investors are turning to classic motors as, unlike shares and most traditional assets, they don’t attract capital gains tax, which is charged at 28 per cent for higher rate taxpayers, and 18 per cent otherwise.
Susan Spash, partner at accountants Blick Rothenberg, said: “Classic cars are an investment free from capital gains tax, which would otherwise be chargeable on UK residents selling investment assets and making a profit. This specific exclusion is because they are categorized both as ‘wasting assets’ and passenger vehicles.”
Wasting assets are possessions including machinery and items with a predicted life of less than 50 years and are exempt from capital gains tax. Antique clocks, pleasure boats, caravans, fine wines are other items treated as wasting assets and free from the tax.
Two years ago Radio 2 DJ Chris Evans invested some £12m on a rare 1963 Ferrari 250 GTO. He helped raise the cash by selling other cars from his extensive collection. But nowhere in the transaction did he have to pay any tax on the profits he made.
The savings are considerable. Tax is charged on any profits on assets above £10,600 in a year. Selling a £100,000 asset – or share portfolio – would normally therefore mean attracting a capital gains tax charge of almost £25,000.
Calls for capital gains tax to be levied on cars to stop people avoiding paying tax on their profits are misguided.Why? Because if became liable for CGT, HMRC would have to give allowances for losses. And with new cars estimated tolose half their value as soon as they’re driven off the forcourt, the net loss to the Treasury would be huge.
Today’s car sale in London also features a 1969 Ferrari Dino 206 GT, one of only 152 models produced, which was once owned by Canadian film director David Cronenberg. It’s estimated to sell for up to £210,000.
“Classic cars have outstripped most other investments”, said Chris Routledge, “and demand for classic cars as an investment is at an all-time high.”
However, anyone tempted to turn a quick profit and avoid tax needs to bear in mind that HMRC will be watching. If they believe you’re buying and selling cars for profit, they will regard you as a trader and demand tax on the money you make.
Also the market is highly risky. Buying a new car in the hope that it becomes a classic can prove to be a costly mistake. Take the Corvette Coupe I’m pictured with. It may be an unusual vehicle to see on the streets of London, but will it become a classic?Tagged in: CGT, classic cars, Elton John, Ferrari, Save tax
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