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The 4 (+1) Financial Benefits To Owning A Classic Car

Land Rover Series 2

Key Takeaways
  • Classics are exempt from paying vehicle tax

  • Classics don't need an MOT but we recommend getting one annually

  • Classics are exempt from Capital Gains Tax

There are four main tax benefits in the UK when owning a classic car. We'll step through each of these, and one bonus tax benefit in the following sections.

Do classic cars have to pay vehicle tax?

Classic cars are exempt from paying vehicle tax.

This annual fee allows you to use your car on the road. It can be into the high three-figures and sometimes into the four-figure range depending on what car you have.

Classic cars don't have to pay providing the vehicle was built 40 or more years ago. This is a rolling 40 year period so the threshold at which are car becomes a classic moves every year.

For example, if your vehicle was built before 1 January 1983, you can stop paying vehicle tax from 1 April 2023.

Next year in 2024, if your vehicle was built before 1 January 1984, you can stop paying vehicle tax from 1 April 2024.

Note: 1st April date is referenced as this is the beginning of the tax year in the UK.

Also note: that the tax exemption here is not automatic. You have to apply for a vehicle tax exemption to stop paying vehicle tax.

Do classic cars need to have a MOT?

Classic cars do not have to have an MOT if they were:

  • built or first registered more than 40 years ago; and

  • no ‘substantial changes’ have been made to the vehicle in the last 30 years

So the next question follows is how are 'substantial changes' defined?

The criteria for substantial change is defined as follows:

"A vehicle will be considered substantially changed if the technical characteristics of the main components have changed in the previous 30 years, unless the changes fall into specific categories. These main components for vehicles, other than motorcycles, are:

  • Chassis (replacements of the same pattern as the original are not considered a substantial change) or monocoque bodyshell including any sub-frames (replacements of the same pattern as the original are not considered a substantial change);

  • Axles and running gear – alteration of the type and or method of suspension or steering constitutes a substantial change;

  • Engine – alternative cubic capacities of the same basic engine and alternative original equipment engines are not considered a substantial change. If the number of cylinders in an engine is different from the original, it is likely to be, but not necessarily, the case that the current engine is not alternative original equipment.

The following are considered acceptable (not substantial) changes if they fall into these specific categories:

  • changes that are made to preserve a vehicle, which in all cases must be when original type parts are no longer reasonably available;

  • changes of a type, that can be demonstrated to have been made when vehicles of the type were in production or in general use (within ten years of the end of production);

  • in respect of axles and running gear changes made to improve efficiency, safety or environmental performance;

  • in respect of vehicles that have been commercial vehicles, changes which can be demonstrated were being made when they were used commercially.

In addition if a vehicle (including a motorcycle):

  • has been issued with a registration number with a ‘Q’ prefix; or

  • is a kit car assembled from components from different makes and model of vehicle; or

  • is a reconstructed classic vehicle as defined by DVLA guidance; or

  • is a kit conversion, where a kit of new parts is added to an existing vehicle, or old parts are added to a kit of a manufactured body, chassis or monocoque bodyshell changing the general appearance of the vehicle;

it will be considered to have been substantially changed and will not be exempt from MOT testing."

You do not have to apply to stop getting an MOT for your vehicle each year. However, you must still keep it in a roadworthy condition.

For what it's worth an MOT in the UK is unlikely to cost you more than £50. To have:

  1. the peace of mind that your car is roadworthy; and

  2. the comfort a future seller will gain seeing a passed MOT year after year

It's well worth the small outlay and effort to get it done.

Do I have to pay tax on any profits from my classic car?

Classic cars, and in fact most vehicles, avoid having to pay Capital Gains Tax on any profits from buying and selling your car.

Capital Gains Tax (CGT) is the tax you pay when you sell an asset (a property, shares or in this case a car) for a profit. Any profit you make is known as a capital gain.

The good news is that most cars are exempt from CGT. That's simply down to HMRC deeming them ‘wasting assets’ with a lifespan of under 50 years.

This is basically HMRC saying that they think it's unlikely you'll make a profit from selling your car and if you do, you get to keep all the upside without the taxman getting his hands on a slice of your pie.

Sit tight there before you set up your dealership on learning the news above.

If HMRC suspects you are trading classic cars with the sole intention of making a profit, this is not CGT exempt and will incur Corporation Tax which depending on how much you're earning will be either 25% or 19% (if your profits are £50,000 or under).

Do I have to pay low emission zone charges in my classic car?

No, you are exempt from low emission zones charges such as ULEZ in London, providing your car is built or registered more than 40 years ago.

That delivers a £12.50 saving per day in London!

What's this final bonus tax break you talk of?

This bonus tax break is far more unknown and rare but is possible to benefit from.

Some classic cars are exempt from inheritance tax and can be passed to the next generation tax free.

Inheritance tax stands at 40% in the UK so this can save a huge tax bill where utilised.

So, how does a car qualify?

There's no denying, the bar is high, and ambiguous, but the guidance states the following: only objects of ‘pre-eminent national scientific, historic or artistic interest’ are exempt, which means your car must be rare or interesting enough for a national, local authority or university collection.

If you satisfy that first criteria, there are additional criteria that must be met, these include keeping the car in good condition and letting the vehicle be displayed in public places for certain periods of time.

The alternative option here is that you donate the car as a gift before passing away. This has some downsides as it needs to be done a sufficient time period before the individual passes and it places restrictions to usage of the car on your behalf.

There you have it 4 (and a bonus) financial benefit from owning a classic car. Tax breaks will vary depending on which country / state you're in so be sure to do your research.

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