Driving a classic car offers that raw, mechanical experience that enthusiasts love, setting them apart from their modern equivalents.
According to a 2025 report, the total estimated value of the UK’s ‘historic fleet’ of classic cars sits at around £35.1 billion.
As Inheritance Tax (IHT) thresholds have been frozen and more estates have been pulled into the IHT net, many families are reviewing the ways in which they can pass on wealth.
For collectors, classic cars can play a unique part in estate planning, especially when they are treated as a Potentially Exempt Transfer (PET).
What estate planning benefits do classic cars offer?
Classic cars are typically not exempt from Inheritance Tax (IHT), with their full value forming part of an estate at the time of death.
However, gifting a car during a lifetime may qualify as a Potentially Exempt Transfer (PET), provided you survive seven years after a car has been donated.
Where gifting a car qualifies as a PET, the asset will sit outside your estate for IHT purposes in its entirety,
For families looking to transfer wealth gradually, classic cars gifted over time can help individuals reduce the value of their taxable estate and donate assets cost-effectively.
Why is gifting a car cost-effective?
While classic cars are not exempt from IHT, they are exempt from Capital Gains Tax (CGT).
Private classic cars are completely exempt from CGT in the UK, under the Taxation of Chargeable Gains Act 1992.
Unlike stocks and shares, individuals can gift highly appreciated classic cars to family members and beneficiaries without triggering a CGT bill.
This means that a classic car bought as an investment, which has since become substantially more valuable, can be passed on without any tax liability.
However, there are some caveats to consider.
This form of estate planning only works if the car has fully exchanged hands, not just that it has been put in the name of a beneficiary.
Where a vehicle remains in the possession of the original owner, but the V5 logbook has been put in someone else’s name, HMRC will treat it as a taxable ‘gift with reservation.’
Speak to an accountant
We understand that classic cars can carry significant sentimental significance, which makes passing them on to the next generation even more special.
We can advise on lifetime gifts and ensure they qualify as a PET, putting the structures in place to transfer your classic cars tax efficiently.
Wondering how your classic cars can help you manage IHT liabilities? Speak to our accountants for expert advice.
