15 May 2018
The UK used car market remained strong in 2017, with a dip of only 1.1%, a slight fall on 2016’s record year. The attractions of a used car are clear but very few of these purchases will be with investment in mind. However, the investment returns on older cars can be spectacular.
Whilst there is no universally acknowledged definition, the market includes veteran cars (those made before 1919) vintage cars (cars built up to 1930) and classic cars. Classic cars are sometimes – rather hopefully – seen as those older than 15 years, but in the UK we can more comfortably include those pre-dating 1 January 1978 at which point the historic cars road tax exemption is available. Regardless, the classic car definition remains a difficult one and endless arguments are to be had with modern day classics (say a 2000 BMW M coupe) pitched against those older but less loved vehicles (anyone for a 1972 flaming Ford Pinto?)
The great news is that at the end of last year, classic cars represented the best performing of the alternative investment classes over the past ten years with a return of 192%, providing returns in excess of wine, fine art and other collectables. As with any investment, be it stocks and shares, property or a painting, there are always winners and losers within any class so you have to pick carefully.
Hagerty, the specialist classic car insurer, tracks the prices of such cars and their results make for interesting reading. Their last quarterly review, published last month, included prices for nearly 2,000 classic cars and 50 of the most popular form their Hagerty Classic Index. Of these 50 cars, only two cars had a fall in price – the Austin Healey 100-4, falling marginally by less than 1%, and the Ferrari Testarossa. The latter’s fall of nearly 3% was attributed more to especially high prices in 2016 rather than a slump and the average price of this models sits reassuringly in excess of £110,000.
So, should business owners look to invest company funds in a classic? The conventional benefit in kind calculation and tax charge is based on the list price of a car when new and this might suggest an interesting loophole. However before rushing out, there is an exception for cars over 15 years old: if their market value is greater than the original list price and that market value is in excess of £15,000, it is the car’s market value rather than list price that is used. You also have to factor in the cost of maintaining older cars which, purely by a factor of their age, can be expensive.
The other word of warning is that there are fears that the market has peaked with many prices hitting their high in 2015. It is therefore probably too late to make easy gains with those making most money having entered the market many years ago.
So the conclusion is don’t buy classic cars for the investment, but simply rather to buy, drive and enjoy them.
If you would like to discuss the implications of this blog, please contact me or your local UHY contact.
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