Are you thinking of upgrading your car? Well, who doesn’t want to upgrade to new luxuries? However, the HMRC’s share of tax is on fuel, sale, and purchase of cars, but this tax is imposed after certain. This article provides details about selling a car as a taxable income.
Talk to our best accountants and bookkeepers in the UK at CruseBurke. You will get instant help whether selling a car taxable income.
Is Selling a Car a Taxable Income?
Selling a car comes under capital gains tax when you sell some personal possessions and gain capital benefits. Capital gains tax, as the name indicates, is the tax imposed when you earn profit while selling your possessions, which can generate capital profit. In the profit earned when you sell some possessions, the initial £3000 will not be counted for tax as this amount is under the capital gain allowance by the HMRC for the tax year 2024/2025.
Are Cars Assets?
Cars come under possession that can generate capital gains, but obviously, they are different from other types of possessions like jewellery, pieces of land, or houses. In the United Kingdom, cars that can be used for less than 50 years are regarded as wasting assets. This means that if you use your car for more than 50 years, your car will be exempted from capital gains tax in the UK. Other types of wasting assets defined by the HMRC are
- Selected natural resources such as natural gas, oil, coal, petrol, water, etc.
- Furniture, even pieces of velvet or any item used in furniture making.
- Machines such as computers or refrigerators
Claiming Allowable Losses While Selling a Car
In general, the cars you are using are old models, and selling them cannot generate profit from their initial cost when you buy them in the first place. So, you cannot claim allowable losses or any capital gains tax relief from the HMRC while selling your used car. The allowable losses can only be claimed on chargeable assets; this includes the like
- Property where you are not living
- Shares you own which do not fall under the tax-free investment or any other scheme
- Your possessions, which are worth over £ 3000, for example, jewellery, paintings or other antique decor or household items
- Your business assets, for example, your cash assets or stocks in the stock market
Selling a Classic Car
On the other hand, selling a classic car in the United Kingdom does not impose capital gains tax; this is mainly due to the fact that they are considered wasting assets by the HMRC and not regarded as taxable income in the UK. But that does not mean that classic cars are not an investment.
Which Vehicles Come Under Capital Gains Tax?
Other than old cars, capital gains tax applies to the following categories of vehicles:
- Vans and lorries
- Motorcycles
- Scooters
- Single-seat sports cars
- Racing cars
- Taxi cabs
The capital gains tax is imposed on profits over £3000 in the year 2024/2025.
Jointly Owned Cars
The capital gains tax on jointly owned cars is applicable on the profits gained over £6000 of the share you own in the vehicle price.
Work Out Your Gain
The gain in selling the car is the difference between the initial price paid when buying the vehicle and the price that you sold it for. For finding the capital gains, you should use the market value other than
- If the vehicle was a gift (there are different rules by the HMRC if the gift was from your partner, spouse or a charity gift)
- The vehicle is sold for a price less than it was bought for
- The vehicle is inherited
- The vehicle is owned before April 1982
Deduct Costs
There are certain other costs that you can deduct from the capital gains, such as the cost of buying the vehicle, selling, or improving the vehicle. According to HMRC, the costs that can be deducted are:
- Fees paid while transferring ownership
- Costs on improving the possessions (that do not include repairs)
- VAT imposed on car (unless the VAT can be reclaimed)
The costs that you cannot deduct, according to HMRC, are:
- Interest paid on the loan you requested to buy the vehicle
- The costs that you can claim as expenses in case you have used your vehicle for business
The Selling Price
The amount of capital gains tax imposed depends on the selling price. If the price is between £6,000 and £15,000, you may be able to reduce your capital gain amount when you sell the vehicle or dispose of it. Below are the steps you need to follow
- Subtract £6,000 from the amount you’ve received.
- Multiply this by 1.667.
- Compare this with the actual gain—use the lower amount as your capital gain.
Work Out If You Need to Pay
Capital gains tax is imposed when you sell a possession like a car and the taxable amount is greater than the capital gains tax allowance. You should calculate the gain on which you have to pay the capital gains tax to HMRC. Follow the steps mentioned below
- Calculate the gain for the vehicle you sold. This is applicable to all the assets, such as shares, stocks, property, or other business assets you own while living in the UK.
- Deduct the allowable losses on the vehicle if applicable. The detail of allowable losses is given in the section above.
The tax year runs from 6th April to 5th April of the current tax year.
If Your Total Gains are Less than the Tax-Free Allowance
If the total gains on the sale of a car are less than the allowable capital gains limit, then you are not liable to pay the capital gains to the HMRC as the gains come under the capital gains tax allowance amount. But in this case, you must report the details of the capital gains in the current year to HMRC while filing your tax return. Must notice that
- The total amount for which you sold the asset was more than 50,000
- You are registered for self-assessment at the HMRC portal
The above rules are applicable for the tax year 2023/2024 onwards in the UK.
If You’re Non-Resident
If you are a non-UK resident, you still need to report to HMRC about your capital gains when you sell any asset like a car, land, or property, even if your gain is less than the allowable capital gains tax or if you make a loss in the selling. Non-resident individuals in the UK do not need to pay tax on other capital gains.
Conclusion
Capital gains tax is the tax imposed when you sell an asset in the UK. The assets can be vehicles, property that you are not using as your residence, stocks, or shares. The capital gains tax is imposed if the profit is more than £3000. The £3000 comes under the allowable capital gains limit. However, if you own the vehicle on a share basis, then the allowable capital gains limit is £6000. There are some assets categorised as wasting assets, such as a vehicle whose life span is not more than 50 years, and the capital gains tax is not imposed on such a vehicle. There are other scenarios where capital gains tax is not applicable, such as inherited vehicles, classic cars, gifted vehicles, etc.
Reach out to our intelligent and clever-minded guys to get the answer to your queries in the UK, we will get to your answers quickly. We will help to decide how to deal with your tax implications.
Disclaimer: The information about selling a car taxable income or not provided in this blog includes text and graphics of general nature. It does not intend to disregard any of the professional advice.