Protecting your car and its future

At Lancaster Insurance we know that your classic car is an important part of your family and making arrangements to ensure that it stays that way for generations to come, can be a challenge.

That’s why we asked Co-op Legal Services for some free guidance for our customers on how to make sure valuable assets, such as your classic, are passed on to your family in the best possible way.

If you’ve watched movies like Gran Torino, Ferris Bueller’s Day Off or Parenthood you’ll know that the combination of classic car ownership and families has the potential to mix like oil and water.

If you consider your car to be one of your most important assets, have you thought about what would happen when you’re no longer here? Who would you want to have it? Are loved ones likely to argue over who’s getting it? Have you considered whether it would be liable for Inheritance Tax and if it might need to be sold to cover the tax bill?

Without putting the right plans in place, your car may not end up in the care of the person you would have chosen.

Will my car be liable for Inheritance Tax?

This will depend on your circumstances.

If you’re leaving your estate to your spouse (or registered civil partner), then it’s likely that there will be no Inheritance Tax liability on your death as they are exempt from Inheritance Tax. However, when your spouse subsequently dies, if they wanted to leave their estate to the children, then Inheritance Tax could be payable at this stage as they are not classified as being exempt.

HMRC allows individuals to leave a certain value of money and assets upon death without any Inheritance Tax being payable, called the ‘nil rate band allowance’ (currently £325,000 per person or £650,000 for married couples). This figure could potentially increase further (to £500,000 per person or £1 million for married couples), if the home is being left to direct descendants such as children.

Some rare classic cars might be exempt from inheritance tax if they are considered by HMRC to be of sufficient scientific, historic or artistic interest.

Outside of this, classic cars are treated by HM Revenue & Customs in the same way as other possessions. Once all allowances have been deducted from the net value of the estate, what’s left is taxed at 40%.

Could I gift my car to limit Inheritance Tax?

While gifting your car to someone else could help to limit Inheritance Tax, it’s important to understand the potential pitfalls.

For a gift to become exempt from Inheritance Tax, it must have been made at least 7 years before your death, and you can’t benefit from the gift in any way after you’ve made it. This means you can’t transfer your car into someone else’s name then continue using it.

Another risk of gifting such a prized possession is that it legally becomes the property of the recipient. If they die, get divorced or run into financial difficulty, it would be classed in the same way as any of their other assets.

Can I include my car in my will?

One way to ensure your car goes to the person you choose after you die is to include it as a gift in your will. You’ll need to make sure specific terminology is used when referring to your car, avoiding any ambiguity, so your wishes are accurately recorded.

The law treats normal cars as ‘chattels’ but classic cars could be seen as an investment, meaning they fall outside of the statutory definition of a chattel. For this reason, it’s essential to include the appropriate legal wording in the will. A will writing specialist, such as Co-op Legal Services, will be able to support you with this.

If you have any questions or need any clarification on any of the legal points discussed in this article, you can email Co-op Legal Services directly at Lancaster@coop.co.uk and one of their legal advisors will review and answer your question.

For more information on estate planning, or to arrange a free estate planning meeting with Co-op Legal Services, email Lancaster@coop.co.uk.

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