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Sold for $44m and no tax to pay! CGT exemptions

Occasionally a case outside the field of tax catches our eye, especially if there is some tax angle to it. One such is the recent Court of Appeal decision in Gregor Fisken Ltd v Bernard Carl [2021] EWCA Civ 792.

This deals with an argument between the parties over the sale of a very sought-after motorcar for a mere $44m (the modesty of the price being apparently attributable to the uncertainty of the whereabouts of the original gearbox). The original cost of the car in the 1960s to the original purchaser (who was not the vendor in the present case) having been $18,000, there have evidently been some reasonably large gains made over the years.

And it is those gains (and, more generally, capital gains on cars) that drew our attention. Such gains are not in any circumstances subject to UK Capital Gains Tax (CGT). Of course, if you are a dealer in such things, your profits will be chargeable to Income Tax (or Corporation Tax if you are a company) but ‘a mechanically propelled road vehicle constructed or adapted for the carriage of passengers, except for a vehicle of a type not commonly used as a private vehicle and unsuitable to be so used, shall not be a chargeable asset; and accordingly no chargeable gain or allowable loss shall accrue on its disposal.’

The exemption does not extend to the sale of a personalised registration number in isolation; and HMRC further consider (albeit, in our view, incorrectly) that if the value of a car is enhanced by its bearing a sought-after registration number, any gain must be apportioned between that attributable to the car (exempt) and that attributable to the registration number (non-exempt).

The exemption referred to does not apply to vehicles such as taxi cabs, racing cars, single seat sports cars, vans, lorries or other commercial vehicles, motorcycles, scooters or motorcycle/sidecar combinations. However, gains on such assets will qualify for exemption under a separate provision unless they have, broadly, been used by the vendor in a business in circumstances in which capital allowances were (or could have been) claimed on them.

In fact, this second provision is much wider than that and applies (subject to the same exclusion) to machinery of any kind – including for example clocks, watches, firearms and traction engines – as well as to any tangible moveable property with an expected life of less than 50 years (as known or ascertainable at the time the asset was acquired by the vendor).

So – what more reason do you need to buy that Ferrari 250 GTO?

For more information, please get in touch with your usual BKL contact or use our enquiry form.

Geraint Jones

Partner, Private Client Tax

T +44 (0)20 8922 9354
E geraint.jones@bkl.co.uk

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