UK GOVERNMENT WON’T RULE OUT CAPITAL GAINS TAX ON CLASSICS
Trade worried new move will impact on values
Her Majesty’s Revenue and Customs (HMRC) has refused to scotch rumours that Capital Gains Tax is to be extended to classic cars. CCW approached the Government department to answer the question once and for all, and despite being given the opportunity to clear up this issue, it issued a firm ‘no comment’.
Capital Gains Tax (CGT) is a tax on the profit when you sell an asset that’s increased in value. The amount gained is taxed, not the amount of money you receive.
Profits made by private individuals are not subject to CGT – at the moment – as classics are classed as ‘wasting assets’, which have a predicted useful life of less than 50 years.
But many people in the industry are bracing themselves for change, and a move in values as profits become taxable.
‘It’s not how many you sell. It involves frequency and intentions’ – HMRC GOVERNMENT TAXATION PLANS
New fears surrounding Capital Gains Tax and classic cars are rising as the Government refuses to confirm or deny it had plans to impose a new raft of CGTs – tax on profits realised when an asset that has increased in value is sold. The amount of gain is taxed, not the amount of money received.
The profits made on buying and selling classic cars are not subject to Capital Gains Tax – at the moment. But industry insiders believe HM Revenue & Customs 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 would be applied to so-called hobby traders at a new capital gains tax rate – the current base is 20%.
Gordon Singer, a tax partner at PricewaterhouseCoopers – one of the largest professional services auditors in the world – explains.
‘ 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 up to 45% (and National Insurance Contributions) depending on their level of income.’
Classics are classed as ‘wasting assets’, which have a predicted useful life of less than 50 years.
Despite numerous attempts by CCW, neither HMRC nor the Treasury could give firm guidelines on what they deem to be ‘trading’.
HMRC spokesman Edward Rowley says: ‘It’s not as simple as one guideline. There’s lots of criteria that determine things – it’s not how many you sell. It involves badges of trade, frequency and intentions, among others.’
Auction analyst Richard Hudson- Evans thinks there might be ramifications in the future. He says: ‘Capital gains tax is a grey area. However, there is a problem with “semi-professional” or “hobby” traders and avoidance of taxes. A clampdown on them might lead to regular people being taxed, too.
‘ Whatever happens, it is essential to keep every single receipt for every item you’ve bought since acquiring the car – just in case this needs to be offset if the taxation status changes. I’ve done this on every vehicle I’ve owned.’
Online content editor of insurance company and market specialist Hagerty John Mayhead suggests CGT on classics may change the market too. He says: ‘I think it does have the ability to affect prices. The market has weathered many storms of late, but the addition of tax on top of sale prices could prove to be the tipping point.
‘But there are so many sticking points that have in the past scuppered any talk of CGT on cars, and I don’t see them being easily overcome.’
Could you be made to pay tax on the gains you made on your Capri investment?