Classic Cars – New tax planned when selling

Rumours surrounding that Capital Gains Tax is to be extended to classic cars has neither been verified or dismissed by Her Majesty’s Revenue and Customs (HMRC).

Capital Gains Tax is a tax on the profit when you sell an asset that has increased in value, not the amount of money you receive. Profits made by private individuals are not subject to Capital Gains Tax – at the moment, as classic are classed as ‘wasting assets’ which have a predicted useful life of less than 50 years.

Insiders believe that HMRC is looking at new tiers that would affect private individuals who effectively trade in classics with the main purpose of making a profit. Income tax would be applied to so called hobby traders at a new capital gains tax rate – the current base is 20%. Where an individual is in business and is buying and selling classic cars with the intention of making a profit, then income tax may apply to those profits at rates of up to 45%.

The HMRC and Treasury have not given any firm guidelines on what they deem as ‘trading’.

Whatever the outcome it is vital that you keep every single receipt for every item you have bought since acquiring the car just in case this needs to be offset if the taxation status changes.

Capital Gains Tax – A Brief History

1965 – Labour Chancellor James Callaghan introduces Capital Gains Tax at 30% to stop people avoiding income tax. A threshold of £9500 was  set.

1988 – Income Tax for high rate taxpayers was lowered from 60% to 40%, and with basic rate payers from 30% to 25% Capital Gains Tax rates followed suit, with a threshold lowered to £5000.

1997 – Capital Gains Tax threshold hits £6500 in the last year of the Tory Chancellorship of Kenneth Clarke.

1998 – Labour’s Gordon Brown introduces a system where the longer you held the asset the lower the rate of tax you paid on it. If you had owned an asset for 10 years, the rate fell from 40% to 24%

2008 – In Alastair Darling’s first budget as Labour Chancellor he scraps the dual rate of Capital Gains Tax and introduces a new lower rate of 18%

2016 – With no major changes to Capital Gains Tax in recent years, rumours are rife that classic cars could fall victim of it.