Investors looking for a capital gains tax loophole are steering towards buying classic cars.
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UK capital gains tax rules are specific about buying and selling cars – providing the purchase is an investment, any gain on the sale is exempt from capital gains tax.
Many wealthy individuals are well-known for their stables of classic cars – and the tax break is just one of the benefits of owning the vehicles.
Buying classic cars has become so popular that one firm has launched an investment fund to pool cash for buying expensive rare and luxury cars.
Investors in the PHD Classic Car fund not only gain a tax advantage but will also get some time behind the wheel as well.
Fund behind the wheel
PHD hopes to raise around £2.5 million to buy classic cars valued at £300,000 each.
Investors time driving the cars will depend on the amount of money they put into the fund.
PHD chief executive James Dow explained investors are looking for high-growth returns for their money and the value of classic cars is booming – and the fund offers diversification away from traditional investment sectors.
He also stated HM Revenue & Customs (HMRC) agreed that the fund was capital gains tax exempt.
Investments will be accepted from £50,000 upwards.
Pensions minister Steve Webb jokingly remarked that new pension rules might see retirement savers drawing down their cash and buying a Lamborghini sports car – but classic car experts reckon they might make more money buying the right car than leaving the cash in a pension.
Private bank Coutts has recently released researched showing that the prives of some classic sports cars have rocketed by more than 250% since 2005.
Aston Martin’s sale manager Paul Spires explains the logic of buying a classic car.
“You can purchase a luxury sportster for around £65, 000,” he said. “Put that money in the bank and the interest rate after inflation and tax has taken a bite is virtually nothing.
“Buy a car and in five years that £65,000 has probably increased to £80,000 or more and you have had five years of enjoying the motor as well.”
Purchasing that classic car is not necessarily as simple as that.
Just like any other asset, investors have to research the market and buy the right car. Other expenses, like storage, restoration and running costs have to be taken into account as well.
Even the PHD fund has a 1.5% a year management charge to cover these expenses.
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