Classic car in a SIPP ?

[jaisharma]

I wonder whether anyone has any experience or info on this. I already have a SIPP, am primarily employed and have a very small side business.
I don't have any appetite to run significant risk of violating any rules. But I understand a SIPP could hold a classic car (or perhaps more than one). It is a different subject but I have read of people putting very high value cars into a Ltd company or possibly a partnership and paying a commercial rate to hire them when using same.
I understand if the ownership of the car was with the SIPP it can't be used by me all the time, but wonder whether a similar arrangement would be permitted for use. I don't mind paying my own SIPP for use of the car from time to time. The SIPP would bear storage costs and maintenance etc I suppose, which I would otherwise have to pay in any event. I can see that I might be able to just buy and store elsewhere, but 10 years of inactivity will kill the car.
If (by now there are a lot of "ifs"!) that was viable, I'd consider putting in one of my current cars or possibly purchasing another.
I suppose the exit could be to sell the car when the time comes to retire, or take it as part of the fund and pay the income tax on it. In terms of time scale, I am 45 so 10 years off 55 which is the earliest a withdrawal can be made in normal circumstances.
All thoughts gratefully received!

[Eric Mc]

HMRC are very wary of business entities being set up purely to hold as assets "motor cars". They very recently clamped down heavily on "faux partnerships" being set up purely to make cars available to company directors as an attempt to get around Benefit in Kind rules.

[jaisharma]

Thanks Eric, I can see the objection to that.
I'm still interested to learn whether anyone has put one into a SIPP.

[Ean218]

Apart from using untaxed money to purchase the asset initially what would the real benefit be?

If bought through pension, when you sell it and withdraw the money potentially 75% would be subject to income tax. If you use it at all in the year there would be a BIK charge, possibly up to 20% of the value of the asset plus incidental costs.

If you bought it with taxed income there is generally no CGT to pay on disposal and no extra tax for driving it.

Would you actually be better off?

[Ginge R]

You can, in principle, put a classic into a SIPP. However, the tax charges are so punitive not only is it not worth it but you probably won't find a provider willing to accommodate it.

[jaisharma]

Thanks for the input. My thinking had a couple of strands in it, in particular for car(s) I already own-
1. The tax consequences.
If a SIPP were to buy a car from me at market value, because of the tax relief theoretically I could contribute £50-60 for every £100 that the pension paid for the car, and the tax relief covers the rest.
After 10 years or so when I could theoretically draw from the pension, I could get £25 of every £100 tax free, with the balance drawn at whatever prevailing tax rate there was. So at least 25% of the purchase price would be tax free, having got tax relief on all the sale proceeds on the way in.
2. The consequences of change in value
I did not buy my cars with "investment" in mind. However, prices appear to have risen rapidly very recently. The rate of change is so fast that I can't see them being stable for a while - they will rise or fall. If they rise, then the gains are tax free. But there may come a point (I am not there yet) where diversification would technically/commercially be a better plan due to the concentration of risk. On the other hand, I don't really want to sell. So it seemed to me that I might hedge my position by holding a car in a SIPP - the capital cost is halved in practice because of the tax relief, and there is still scope to benefit to some extent from the rise in values. If there is a fall in values, I can just buy the car back from the SIPP at market rate and continue owning it.
Anyhow, those were my thoughts. But in practical terms I don't want to just park the car and have it inactive for a decade, and the tax consequences of using it whilst invested, although perhaps not specified, seem unattractive.

So probably, I'll do nothing, unless anyone has any other ideas :-)

[pacoryan]

There is no CGT on personally owned cars anyway. The SIPP buying the car from you would have the effect of releasing capital held within the scheme currently if you needed cash, but it would be expensive to demonstrate an arm's length transaction - obtaining independent values for example, and then to use it you would need commercial insurance that allowed the pension to hire it, a rental agreement, and then you need to pay the rental cost at a market rate (which has to be demonstrable) but of course this rental becomes a return on the investment within the SIPP, accruing tax-efficiently.

Easier with buildings than cars, and given the recent spate of failures with esoteric SIPP investments HMRC are watching carefully, most SIPP companies won't go near anything unusual any more.

Bearing in mind it would mean the same amount of legal paperwork etc for GTO as for a GTI you can see why it might be a worthwhile avenue to explore for some owners but not others!

[jaisharma]

Thanks for the additional comments. Now, I just need the GTO (and for it to be within the max pension size).