Friday April 8, 2016
The chancellor brought some fantastic news for classic car owners in his budget earlier this year, announcing that cars built before 1976 qualify for FREE road tax from 1st April 2016. This announcement declares that “from April 1st each year, vehicles constructed more than 40 years before January 1st of that year will automatically be exempt from paying Vehicle Excise Duty (VED)”.
If you’ve got a car that now qualifies for free Vehicle Excise Duty, you’ll have to do complete some paperwork to ensure your VED exemption is fully processed. Such a task can be overwhelming, but one thing is clear – apply immediately rather than waiting until your current period of tax has expired, that way you’ll be ahead of the game.
The reality for many classic car owners, like you, is that calculating and settling the right amount of tax can be quite a time consuming process. Classic car owner’s tax liability can vary depending on their circumstances, so here’s a quick guide to the sort of taxes that commonly affect classic car owners.
Whether you’re exempt or not, you still have some form of road tax liability: vehicles that are exempt still need to apply for nil-value road tax.
Capital Gains Tax
This is a tax on the profit when you sell something (an ‘asset’) that has increased in value - so put simply you are taxed on the additional money you make from the sale, compared to what you bought it for.
This subject can catch a lot of people out and there are many complex rules with Capital Gains Tax. In general, if you sell an asset (such as a classic car) that returns a profit of more than £10,600, you are liable to pay 28% tax on this asset. Classic cars, however, are exempt from capital gains on the grounds that they are ‘wasting’ assets with a life expectancy of 50 years or less (and thus, not capital) and there is a special exemption for ‘passenger vehicles’. That doesn’t mean the taxman won’t want to know if you make some money off a classic sale, so if in doubt, speak to a financial advisor.
Classic car businesses
Are you a classic car dealer? Most of us would say no, but if you’ve sold and bought classics on a regular basis you could be considered as having a ‘trade’ for tax purposes. The conditions for carrying on a trade are quite complex but it works on the basis of selling stock regularly for the sole purpose of profits. If you are selling cars regularly enough to be considered a trader, you need to pay between 20% and 26% in tax, depending on how high your turnover is and when the trades were made. This fraction is taken from your profits and it is worth seeking financial advice should you find yourself in this position.
It is possible to be a classic car owner without the need to pay any tax at all, but you can sometimes be hit with unexpected bills. Don’t get caught out, always seek advice from a financial advisor if you’re unsure and remember that with tax, it is your responsibility to get right.