UK GOV­ERN­MENT WON’T RULE OUT CAP­I­TAL GAINS TAX ON CLAS­SICS

Trade wor­ried new move will im­pact on val­ues

Classic Car Weekly (UK) - - Front Page - Mur­ray Scullion

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?

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