Protect your Wealth
By Michael Fogg
through rental of the vehicle (although make sure that your insurance allows for this) or else through using the vehicle as a private hire vehicle (for example, a taxi, a limousine, or for specialist work such as wedding hire).
Aside from bricks and mortar ‘real estate’, a common asset owned by many people is a vehicle. Be it a daily run-around car, or one or more classic or other collectable vehicles. These vehicles are part of an individual’s personal possessions, legally known as chattels. I have been asked on a couple of occasions over the past month how these are treated for tax purposes. Obviously, it goes without saying that anything I say here is general observation and should not be treated as any form of financial advice. Please do not rely on it, but instead seek appropriate legal or financial advice from a qualified professional based on your personal circumstances. Forms of Tax There are, broadly, three forms of tax that I shall focus on in this article. These are Income Tax, Capital Gains Tax, and Inheritance Tax. Each of these three forms of taxation has different rules governing them, and on whether they apply to each vehicle. Assumptions For each of the three taxes I deal with below, I shall assume that the vehicle is legally owned by one person, rather than by a Registered Company, a Trust, or a Charity. Should the vehicle be owned by any of these, then the rules relating to taxation will be different (and potentially more beneficial – although this will depend upon the situation). I’d be happy to discuss with anyone who has questions on this. Income Tax A vehicle is an asset, and as such could be used to generate income. Most commonly, this would be 48 CARDIFF TIMES
Should this be the case, any income generated by the vehicle is classed as income and should be accounted for as part of your annual self-assessment tax return. Be aware that there are some costs which can – in some circumstances – be offset against the income to leave a smaller amount against which income tax will be charged. It’s worth ensuring that you consult with an appropriate professional such as an accountant to make sure that all relevant expenses have been considered. Likewise, it is worth exploring who the most sensible person is to pay income tax on the income generated by the vehicle. For example, if you are married and one of you is a higher-rate income taxpayer and the other of you is a basic rate income taxpayer, it may be sensible to consider using your spousal gifting allowance to legally transfer assets from the ownership of the top-rate taxpayer to the basic rate taxpayer to minimise the amount of income tax that needs to be paid. Again, should you think this approach might be beneficial, you may benefit from seeking independent advice to ensure that it is done correctly, and legally. Capital Gains Tax The general rule here is that when an asset has appreciated in value between being acquired and disposed of, that there is a chargeable gain which may need to be taxed. Each person has an annual Capital Gains Tax (“CGT”) allowance which they can use, but any gains above this allowance are taxed at a fairly high rate (currently 28%). However, there are two exemptions which can be used to legally avoid paying CGT on the sale of a motor vehicle by classing it as a ‘wasting asset’. This means that it is an asset that is estimated to have less than 50 years’ worth of use remaining. It’s worth noting that, even when the vehicle remains in existence for over 50 years, the same exemption applies. These exemptions are: • where the vehicle is classed as a passenger car
