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The legacy of classic cars: tax considerations when passing on a prized possession

Posted: 16/05/2024

There are over 330,000 ‘classic’ cars in Britain according to a freedom of information request to the DVLA in December 2023, which defines these as being cars that were first registered over 40 years ago. There are several diverse legal exemptions that historic cars can benefit from, including exemption from vehicle excise duty (the often mis-named ‘road tax’) and from annual MOTs. In addition, aside from driving a piece of motoring history, classic car drivers also benefit from exemptions to the London ULEZ and other low emission zones, including the Oxford ZEZ.

Something that is perhaps less well-known is that cars designed for personal, private use are exempt from capital gains tax as wasting assets. For most owners of private vehicles, this is barely a consideration, as the vast majority reduce in value when they leave the forecourt as new. However, many classic or historic vehicles can (and often do) increase in value, especially those acquired as restoration projects and lovingly restored by their owners.  This does of course assume that the maintenance costs haven’t exceeded the gain in value.

Provided that the car is not modified for racing use, to be (or become) a single-seater, or otherwise made unsuitable for private use, then it will remain exempt from capital gains tax under section 263 of the Taxation of Chargeable Gains Act 1992. Simply putting an historic vehicle through its paces at the occasional track day should not affect this.

Deciding when the time is right to put away the toolbox and pass on a classic car to the next generation is deeply personal. Often, there will be a fellow enthusiast in the family who is a natural recipient of the car, either as a lifetime gift or by way of a legacy in a will. There may be considerations such as evening up other legacies to match the value of the car, and all of this is something to discuss with an experienced advisor. A whole collection may also be passed on in this way; however, this could throw up problems such as effectively garaging a large number of vehicles, and more creative solutions may need to be found.

In some cases, there may not be an obvious person, whether family member or friend, to receive a classic car or car collection. Such owners may therefore look further afield, to museums, preservation trusts, and other charities to become the custodian of their piece of motoring history.

Motor heritage charities and other organisations can accept gifts of classic cars, and a gift to a registered charity would also be exempt from inheritance tax. Even part-restored classic cars can be found a home in organisations where they will be cherished and may be brought back to life, either to be displayed, driven, or used to educate and train the next generation of classic car mechanics. A sought-after model or particular collection may also be offered to a specific specialist charity for purchase, either during lifetime, or by direction in a will or other testamentary document. 

In all of these cases, where a charity is being considered as a recipient of a classic car, liasing with it is important. This allows effective planning to be put in place for the physical and legal logistics of getting the car into the charity’s ownership, and also for lifetime planning on the part of the current owner. In particular, where sale to a charity is the hope or aim, it may need to fund-raise to acquire a particular collection, and will need time to put that in place.

Planning for the future of a classic car, whether a single vehicle or a collection, is a very personal process. If you would like to consider putting something in place, or are an individual or charity who has been approached by a current classic car owner, you can discuss this with a member of our private client or charities teams.

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Penningtons Manches Cooper LLP

Penningtons Manches Cooper LLP is a limited liability partnership registered in England and Wales with registered number OC311575 and is authorised and regulated by the Solicitors Regulation Authority under number 419867.

Penningtons Manches Cooper LLP