Making a profit from car sale - Tax implications

HashSlinging

I'd be very careful of this, esp if you plan on doing it every 6 months. You might be a victim of "Jealous Neighbour syndrome". Quick example - My Father in law is a cabinet maker and during the 70's to try and make ends meet he done a few nixers from his garage on Saturdays, a jealous neighbour rang the revenue and they sent a tax inspector around and was told to stop or he'd face fines.

Edit- but I know someone who buys and sells cars and earns roughly twice what I do, so go for it at your own risk.

Kinetic^

A trader never takes ownership of the vehicle. If he does then it become his car and if he sells it for a profit then it's not liable to IT/CT/CGT.

Ownership is the key here OP. I'd still be very wary of doing it myself but if the car goes into your name then it's seen as a wasting asset rather than stock in your inventory.

Blitzkrieger

HashSlinging wrote:

a jealous neighbour rang the revenue and they sent a tax inspector around and was told to stop or he'd face fines.

He's lucky that's all they did. They could have come along and assed him for seventy-bazillion pounds and it would have been up to him to prove that he didn't owe them. Guilty until proven innocent.

AFAIK there is a set number of cars you can sell a year before being considered a dealer. This means you won't get luxuries dealers get like dealer plates or garage insurance. Because a car is seen as capital, you may be liable for capital gains tax, but they'll never come after you. They wouldn't have the resources to check every car sale during the year and if they did selling a car every six months isn't going to raise flags. I know people with short attention spans who go through four cars a year. If they did suspect something, they'd never come after you anyway - the tax on the meagre profit you're likely to make (after expenses) isn't going to be worth the cost of the audit.

Henry Ford III

Kenny 5 wrote:

A trader never takes ownership of the vehicle. If he does then it become his car and if he sells it for a profit then it's not liable to IT/CT/CGT.

Ownership is the key here OP. I'd still be very wary of doing it myself but if the car goes into your name then it's seen as a wasting asset rather than stock in your inventory.

Of course a motor trader owns his stock!

Log book records are not relevant to the assessability of tax on profit.

Most "private" car sales lead to a loss, but if someone is casually trading in cars, i.e. buying and selling occaisionally, but with a view to making a profit the issue of whether or not his name appears on the log book does not matter.

The key here is the definition of "trading" for tax purposes.

Henry Ford III

Blitzkrieger wrote:

He's lucky that's all they did. They could have come along and assed him for seventy-bazillion pounds and it would have been up to him to prove that he didn't owe them. Guilty until proven innocent.

AFAIK there is a set number of cars you can sell a year before being considered a dealer. This means you won't get luxuries dealers get like dealer plates or garage insurance. Because a car is seen as capital, you may be liable for capital gains tax, but they'll never come after you. They wouldn't have the resources to check every car sale during the year and if they did selling a car every six months isn't going to raise flags. I know people with short attention spans who go through four cars a year. If they did suspect something, they'd never come after you anyway - the tax on the meagre profit you're likely to make (after expenses) isn't going to be worth the cost of the audit.

Nope. All wrong.

1 sale can be construed as trading. Garage plates or trade insurance are not relevant either.

Trading in "capital" assets is still trading. Case I schedule D for tax purposes. Income tax applies (for an individual).

Self assessment means it's up to an individual to declare and pay tax on their earnings. It's not up to Revenue to come after you.

Kinetic^

Henry Ford III wrote:

Log book records are not relevant to the assessability of tax on profit.

:rolleyes: Of course it's relevant. it could be deemed that if the car has been put into the OP's name then it is for private purposes.

Kinetic^

It's a transaction that falls under capital gains if the car is in the OP's name. The fact that's a wasting asset means no tax is liable. FACT.

Kinetic^

Sure if the log book wasn't important, you'd have every person buying 2/3 cars a year, making a loss on them and then claiming the loss against their employment income.

Get real ffs!!! :rolleyes:

Henry Ford III

Kenny 5 wrote:

:rolleyes: Of course it's relevant. it could be deemed that if the car has been put into the OP's name then it is for private purposes.

If the OP is trading the tax people can look through this. It's a basic principle of tax law.

Henry Ford III

Kenny 5 wrote:

It's a transaction that falls under capital gains if the car is in the OP's name. The fact that's a wasting asset means no tax is liable. FACT.

No. Trading as defined (again) is the key term here.

If the OP is not trading in cars no tax event occurs.

If they are then any profit is assessable.

Kinetic^

Henry Ford III wrote:

If the OP is trading the tax people can look through this. It's a basic principle of tax law.

How exactly are they going to determine who in the buy and sell is trading and who isn't? It comes down to ownerhip but you seem to be in denial about that.

Henry Ford III

Kenny 5 wrote:

Sure if the log book wasn't important, you'd have every person buying 2/3 cars a year, making a loss on them and then claiming the loss against their employment income.

Get real ffs!!! :rolleyes:

You clearly do not have the abilty to comprehend what's been written here.

Most people do not trade in motor cars as a business. As such any loss on the difference between the purchase and sale prices of their cars is disregarded for tax purposes.

I think this will be response on this btw. If you can't appreciate the difference please carry right on (in ignorance).

Henry Ford III

Kenny 5 wrote:

How exactly are they going to determine who in the buy and sell is trading and who isn't? It comes down to ownerhip but you seem to be in denial about that.

One last attempt..

1/. A trader buys and sells cars with a view to a profit. Whether or not their name appears on a VLC isn't of any relevance to the Revenue.

2/. An ordinary owner doesn't trade cars.

Simple.

Kinetic^

xabi wrote:

It will be my primary car that i will drive for a while and sell on.

Henry Ford III, this statement above shows that he will be an ordinary owner, how are the revenue going to prove otherwise?

Xabi buys car. Drives it for a while. Sells it. Makes either a profit or a loss like any other private seller might do. No tax liability as it falls under CGT. Put you or me in that situation, are we traders? NO.

You're trying to distinguish the OP as a trader when he isn't one.

If Xabi buys a house, lives in it, sells it for profit or loss........is he an estate agent? NO.

Carb

The Tax Acts do not set out any specific rules for distinguishing between trading and non-trading income. However, a fairly well established set of guidelines have been laid down by the courts in various decided cases over the years. These are known as the “Badges of Trade”, which include: -

1.THE SUBJECT MATTER OF THE SALE.

Whilst almost any form of property can be acquired to be dealt in, those forms of property, such as commodities or manufactured articles, which are normally the subject of trading, are only very exceptionally the subject of investment. Again, property, which does not yield to its owner an income, or personal enjoyment merely by virtue of its ownership is more likely to have been acquired with the object of a deal than property that does.

2.THE LENGTH OF PERIOD OF OWNERSHIP.

Generally speaking, property meant to be dealt in is realised within a short time after acquisition. But there are many exceptions from this as a universal rule.

3.THE FREQUENCY OF SIMILAR TRANSACTION.

If realisations of the same sort of property occur in succession over a period of years or there are several such realisations at about the same date a presumption arises that there has been dealing in respect of each.

4.SUPPLEMENTARY WORK.

If the property is worked up in any way during the ownership so as to bring it into a more marketable condition, or if any special exertions are made to find or attract purchasers, such as the opening of an office or large-scale advertising, there is some evidence of dealing. When there is an organised effort to obtain profit there is a source of taxable income. But if nothing at all is done, the suggestion tends the other way.

5.THE CIRCUMSTANCES THAT WERE RESPONSIBLE FOR THE REALISATION.
There may be some explanation, such as a sudden emergency or opportunity calling for ready money that negates the idea that any plan of dealing prompted the original purchase.

6.MOTIVE.

There are cases in which the purpose of the transaction and sale is clearly discernible. Motive is never irrelevant in any of these cases and can be inferred from surrounding circumstances in the absence of direct evidence of the seller’s intentions.

It is however, important to appreciate that the “whole picture” must be taken into account, so that the weight to be given to the various factors may vary according to circumstances. Furthermore, it is important to recognise that any given factor may be present to a greater or lesser degree, and that the absence (or presence) of any single factor is unlikely to be conclusive in its own right.

The above are the Revenue's badges of trade. IMO, the OP could be classed as trading, but whether the Revenue would be bothered is a different story.

Kinetic^

According to the badges of trade the OP is borderline. He hasn't stated if he's going to enhance the vehicle in any way which would IMO lead to definitive trading status.

Sure he could be considered a trader but quite frankly if he were, I reckon you'd have a big legal battle to determine if he was. Depending on which way that went, you could have an overhaul in legislation in relation to buying or selling cars.

Think about it, you'd have something similar to PPR for cars and then you've apportion the amount of time that it was in private use against how long it's been on sale (or something to that affect). Just not going to happen.

Henry Ford III

You do not need to tick every box of the badges of trade for trading to take place.

If a land holding co. buys a pacel of land and sits on it for years, and sells it on again for a profit any profit is clearly assessible (to C.T. in this instance).

No enhancement is necessary.

Likewise a jeweller who buys a polished diamond and sells it again at a profit has made no enhancement.

Badges of trade (I'm very familar with them) are only indicators.

I agree Kenny it's a bit borderline, perhaps too much trouble for Revenue to be intereted in, but that doesn't change the principle.

Kinetic^

Henry Ford III wrote:

You do not need to tick every box of the badges of trade for trading to take place.

If a land holding co. buys a pacel of land and sits on it for years, and sells it on again for a profit any profit is clearly assessible (to C.T. in this instance).

No enhancement is necessary.

Likewise a jeweller who buys a polished diamond and sells it again at a profit has made no enhancement.

Badges of trade (I'm very familar with them) are only indicators.

I agree Kenny it's a bit borderline, perhaps too much trouble for Revenue to be intereted in, but that doesn't change the principle.

Granted but I think it's more than a bit borderline. Agree to disagree?

Henry Ford III

Of course

PauloMN

Henry Ford III wrote:

You do not need to tick every box of the badges of trade for trading to take place.

If a land holding co. buys a pacel of land and sits on it for years, and sells it on again for a profit any profit is clearly assessible (to C.T. in this instance).

No enhancement is necessary.

Likewise a jeweller who buys a polished diamond and sells it again at a profit has made no enhancement.

Badges of trade (I'm very familar with them) are only indicators.

I agree Kenny it's a bit borderline, perhaps too much trouble for Revenue to be intereted in, but that doesn't change the principle.

A land holding company and a jeweller are both already traders though.

An individual buying and selling a car, held privately and with the owner on the VLC is just that - a private individual - and is entitled to sell his/her car for a profit/loss without any tax liability.

The VLC thing is very important. A car trader can hold cars (and yes - own them) but does not have to be a named/registered owner on the VLC. This gives him/her an advantage over an individual in that they are not another registered owner of the car.

If someone buys a Micra and goes named on the VLC, they have become the registered owner of the car and they can sell it privately for a million quid if someone is daft enough to pay them as such. They own it privately, in a completely different manner to a car trader.

The only restrictions to private individuals selling the cars they are the registered owners of as regards tax implication is for VAT and VRT purposes i.e. if an individual has bought a car into Ireland VRT and/or VAT free, like someone moving from the UK (VRT excempt) or a car adapted for a driver/passenger with physical disabilities (VAT & VRT excempt)

kluivert

Your all wrong!!!

Only messing.

This is a subjective manner and really something not worth reading and typing over but here goes.

The answer is that the OP is not trading in the circumstances highlighted above.

He takes possession of NO STOCK, and he gains personal benenfits and rewards for the use of the vehicle.

When it comes to the car trade, the question is where you take ownership of the car or the car becomes part of your stock which will be the deciding feature whether the person is trading or not.

Now who said that they are doing tax exams, have you not learned your case law for this one. Do you remember the case about the dealer who bought and sold lorries.

Dont ask for hims and dates, I studied it 5 years ago.

Basicly revenue applied the six badges and, and judged on lenght of ownership and and no of similiar transactions.

The dealer didnt take ownership and bought and sold a couple of lorries a month say.

He was deemed to be trading as he gained no personal benefit from the ownership of the lorries but gained an economic benefit from the sale of them.

As lorries where not in his ownership, the revenue deemed them as trading stock over personal consumption.

The OP is not considered to be trading.

Now enough is enough. We all have our own opinions but my is right one that would be taken up by the revenue.

Intent to make a profit - we're irish, we would try to make a profit out of fresh air if we could get away with it.

unkel

I doubt the Revenue would go after the OP if he buys and sells two cars a year, uses them as his main driver and has his name on the VLC, even if he did them up. The case based on the badges of trade wouldn't add up to much...

kluivert wrote:

Now enough is enough

Anybody object to me closing this thread?

Kinetic^

Negative - go for it.



Ps. I win

xabi

Go for it Unkel, i think i have enough information now.

X.

unkel

xabi wrote:

Go for it Unkel, i think i have enough information now

OP is happy with the answers he got so everybody wins