Capital gains on classic cars: you auto know the facts

By Gordon Singer, PwC’s Private Business leader in Yorkshire

Last month London auction house, Bonhams, sold a 1955 Mercedes-Benz 300 SL for $1.34 million. This seems like an extortionate amount of money and a hobby for only real car buffs, but classic cars have proved a great investment over the last few years, often offering better returns than FTSE100 shares, art, wine and jewellery, according to the latest Knight Frank Wealth Report.

Unlike normal cars, which mysteriously depreciate from the second you drive them off the forecourt, certain classic cars can significantly increase in value if they are a sought after make or model, or have a particular provenance. They don’t even have to be particularly old to be classed as classic, any car manufactured before January 1976 is eligible for historic status in the eyes of HMRC.

Alternative investment classes, such as classic cars, have risen in value for a number of reasons including demand from growing economies like China. You can see why wealthy investors are increasingly interested. According to Knight Frank classic car values have increased 469% in the past 10 years - compared to the FTSE 100, which has risen 51% over the same period. And you can't drive around in the share index.

The current world record for a car sold at auction was set in August 2014 when a 1962 Ferrari 250 GTO was sold for an eye watering $34,650,000, one of only 36 ever built.

Cars also have a different tax treatment to traditional investments such as stocks and shares. They don't attract capital gains tax (CGT) if you make a profit on sale, as they are classed as "wasting assets", which have a predicted useful life of less than 50 years - even if they are still going strong after this time.

On other chargeable assets, CGT is charged at 28% for higher-rate taxpayers so this represents a big difference. But there are other costs to take into account such as insurance and servicing unlike for stocks and shares, (though it’s never a bad idea to have a financial MOT).

The downside to the CGT free status is that it isn't possible to claim a capital loss for tax purposes if you lose money on a car. This isn't ideal for those who decide to take their £4m classic car for a spin because, if they do crash, a tax loss can't be claimed. This is exactly what happened last year when two vintage cars crashed at Goodwood, one valued at £4m and the other at £1m – a very expensive collision.

It’s also worth knowing that any individual buying and selling classic cars with the main purpose of making a profit may be seen by HMRC as trading, in which case their profits could be subject to income tax at rates that are likely to be higher than CGT rates.

If you have any questions about the tax treatment of think a classic car or any other investments, please get in touch with gordon.singer@uk.pwc.com / 07711063562.