Britain has barely left the European Union, but since 1 January 2021, those in the classic car market have encountered quite a few bumps in the road.
There’s talk of cars needing their own passport and big VAT bills on imported modern classics. As buyers, owners, dealers and manufacturers alike try to unpick the new rules, a certain amount of conjecture remains. In the words of classic car insurance specialists Hagerty: “The result has been a lot of new red tape and a fair amount of confusion”.
Before I go on, it’s significant to remember that luxury investments like classic cars have continued to thrive despite the COVID-19 pandemic. In fact, they were one of the best performing assets in Knight Frank’s 2021 Wealth Report, second only to fine art; if anything, owners have valued their cars more than ever. “Ferraris revved up particularly strongly, with the HAGI F Index rising 14%,” according to the latest findings. And a 1932 Bugatti Type 55 Super Sport Roadster was sold by Bonhams for US$7.1 million last year. The classic car market is clearly buoyant, but for worldwide collectors, the current grey areas of Brexit need greater clarity.
Here are some of the current conundrums: Will European cars have to stay in Europe? Will UK cars remain stranded there? If a UK car is sold to Italy, for example, would it be subject to Italian VAT? And how does a car go about obtaining a passport anyway?
Logistics expert Peter Bonham Christie sums it up well: “When you load a car onto a trailer or into a lorry, it becomes ‘goods’. You need a ‘green card’ from your insurer for each element – the car, the towing vehicle, and the trailer – and as you’re transporting goods, you also need an ATA Carnet. It’s not as if we haven’t done this before – the system has been the same for entry to Switzerland for years – but it adds a new layer of cost and complexity to the process.”
Dealers of more modern collectible cars have another issue: the addition of a 20% value-added tax (VAT) to the import of used cars from Europe that are less than 30 years old. This scenario is already leading some of IQ-EQ’s clients to consider keeping a car outside of their home jurisdiction.
It’s important to note here that we are not tax advisers; we support our luxury asset clients with all aspects of acquiring, maintaining and selling classic cars. But when it comes to Brexit, the tax implications can be complicated and cannot be ignored.
Let’s take a look at a hypothetical scenario to illustrate these points further. A Jersey resident, for example, wants to buy a car based in the United States. The car is a covered headlights Ferrari 250 GT California Spyder SWB, which has the all-important Ferrari Classiche certification and is of a high calibre and understandably high value (circa $16 million). If it stayed in the US, then it would, of course, retain its US status. But, for the Jersey owner, there may be US Capital Gains Tax and Inheritance Tax considerations.
If the car was brought to the UK, it’d be subject to the reduced level of 5% UK VAT (a significant additional capital spend of the sterling equivalent of $800,000) – if it was registered at a UK address. Should anything happen to the owner, it would be liable for UK Inheritance Tax. Now that we live in a post-Brexit world, if it had its UK taxes paid, it would no longer have EU tax status. Another administrative hurdle is that a Jersey resident cannot drive a UK-registered car on the island on ‘foreign’ number plates.
Of course, the car could be registered in Jersey itself, with a 5% Goods and Services Tax (GST). If the car was later sold on elsewhere, fresh tax would be payable in the jurisdictions where it was going to, at the applicable tax rates. A viable option then might be neighbouring Channel Island, Guernsey, with no VAT or GST. It would need to be registered to a Guernsey individual or incorporated company and be on the island for six months of the year. But, there would be the benefits of the island’s purpose-built temperature controlled secure car facility and easy access to the UK and EU.
While complicated, this scenario illustrates the often complex decisions when buying, owning and later selling a classic car, which have become more nuanced since our departure from the EU. From my experience, luxury asset owners, like classic car enthusiasts, will no doubt find ways to solve these problems with the help of experts – and, as per the pandemic before it, will not let these new barriers get in the way of their passions and their purchases.
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IQ-EQ’s Classic Car Services team are independent specialist advisers to worldwide collectors on all aspects of owning or selling a classic car, from a non-broker perspective. If you’d like to speak to me about this article or the specialist classic car services we provide, please get in touch using my contact details below.
