Wondering if you need to pay the taxman when you sell your car? Wonder no more
Cars are one of the more taxed items in society: everything from fuel duty and road tax, to VAT and company car tax seeHMRC take a slice of revenue from motoring.
If you’re in the process of selling your car, you may wonder if you need to pay the taxman (or woman) any money from the proceeds.
The short answer is ‘no’, you do not need to pay any tax when selling your car, though there are some limited circ*mstances in which you might, which is what we will cover in this guide.
If you are looking to sell your car, remember you can do that through Carwow. See how thousands of dealers could be bidding to buy your car. It’s free to use and simple to do.
Do I need to pay Capital Gains Tax?
Capital Gains Tax (CGT) is a levy applied on profits made from selling certain possessions or financial and business assets.
Profits from selling possessions worth £6,000 or more are subject to CGT, as are profits from shares, and property that is not your main home.
Cars, however, are exempt from Capital Gains Tax, as they are considered a ‘wasted asset’. This means they are viewed by HMRC as having a “predictable life which does not exceed 50 years”, while also being “likely to become less valuable” over time.
But the car market has been hugely changeable in recent years: while some classic cars have been appreciating in value for some time, more run-of-the-mill second hand cars have in some instances risen in value, as demand for them has soared due to new models being subject to supply shortages and long waiting lists.
Some recent or soon-to-be owners of new models, meanwhile, have seen dealerships offer to buy their cars from them before or shortly after they have taken delivery as other customers, keen to beat the queues, may be willing to pay above-market prices for brand-new models.
These situations have resulted in instances where cars have made money but, despite this, the ‘wasted asset’ rule means they are not subject to CGT.
Are all vehicles exempt from Capital Gains Tax?
Private cars, like those you and I use on a daily basis or perhaps keep as a second car for highdays and holidays, are not subject to Capital Gains Tax, but other types of vehicle can be.
This includes (information taken from HMRC guidance):
- Taxi cabs
- Racing cars
- Single-seat sports cars
- Vans, lorries and other commercial vehicles
- Motor cycles, scooters or motorcycle/sidecar combinations.
Given this is a matter of tax, the issue is not necessarily as straightforward as that list might imply, however.
Such vehicles are classified as ‘machinery’ by HMRC, which means they can be considered a wasting asset, unless they “were, or could have been” subject to tax relief from capital allowances.
As we say, tax is rarely a straightforward matter, so if you are in any doubt about whether you may have tax obligations as a result of selling a car, you are best advised to consult with an accountant, tax expert or similar professional.
Do I need to pay road tax?
You do not have to pay road tax on a car you are selling; indeed, the opposite may be true and you will be able to claim road tax back for any complete months you have paid for past the date of sale.
Assuming you complete the transfer process properly when selling your car, you should receive a cheque from the DVLA automatically for any road tax you are due back, though we have a separate guide for cancelling car tax should you need more information on this topic.
Change cars online with carwow
Looking for an easy way to change your car? Then carwow is the place to go. You can sell your car online for a great price, and get the best deals on a new one. All through our network of trusted dealers and all from the comfort of your home. Tap the button below to get started today.
