Enjoyable investments?

As the summer approaches I always remember, when growing up in Milton Keynes, times when my older brother would take me to the Aston Martin factory in Newport Pagnell during my school holidays to look at all the hand made cars moving between the various buildings.

I have always hankered after one ever since, or at least something a little better (if that’s possible) than the 1967 VW Beetle I inherited from same older brother over 25 years ago.

Keeping tabs on the classic car market ever since they have been one of those assets that have risen in value quite considerably over the past few years due to significant global demand.

This demand has been demonstrated by one of our clients appearing not once, but twice, on a well known classic car restoration TV series recently and outbidding everyone else.  Whilst another client who managed to acquire an Aston Martin in the 1980’s for single digit thousands, at a time when the factory were selling tens of cars a year compared to the many thousands a year now, is now worth significantly more.

Part of the interest (excuse the pun) is that with banks only paying miniscule amounts on bank balances the desire to attend a classic car auction, in some quarters, appears to be growing stronger by the day.

Unlike normal cars, which generally depreciate from the moment you drive them off the forecourt, classic cars can significantly increase in value if they are a sought after make or model, or have a particular provenance. In August 2014, for example, the world record was set for a car sold at auction: a 1962 Ferrari 250 GTO for US $34,650,000, one of only 36 ever built.

According to Knight Frank classic car values have increased 469% in the past 10 years – compared to the FTSE 100, which has risen 51% over the same period.  And you can’t drive around in a share with the roof down on a hot summer day.

Classic cars also have a different tax treatment to traditional investments such as shares. They don’t attract capital gains tax (CGT) because if you make a profit on sale as they are classed as “wasting assets”, which have a predicted useful life of less than 50 years – even if they are still going after this period of time has lapsed.

On other chargeable assets, CGT is charged at 28% for higher-rate taxpayers (18% otherwise) so this represents a big difference.  But there are other costs to take into account such as insurance and servicing which you don’t have with shares.

The downside to the CGT free status is that it isn’t possible to claim a capital loss for tax purposes if you lose money on the car. Certain car restorations could turn out, like many house renovation projects, taking twice as long and cost twice as much as first anticipated and such a tax loss can’t be claimed.

It’s also worth pointing out that any individual buying and selling classic cars with the main purpose of making a profit may be seen by HMRC as trading, in which case the profits would be subject to income tax at rates that are likely to be higher than capital gains tax rates.

So if you are thinking of building a collection of classic cars ahead of the summer please reconsider your motives.  Alternatively if you are just feeling the need to attend that classic car auction and get the convertible you always wanted for the summer I’d be glad to tag along.

Clearly the value of classic cars can go down as well as up but with newer cars getting in on the act such as recent limited edition Porsches, which were selling when new for approximately £150,000, now being advertised for £350,000 after only a few years who knows where things will end?

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