How to make money from classic cars

Nick Daws delves into classic car investment, revealing its allure beyond financial gains, encompassing history, aesthetics, and practical considerations.

Today I’m spotlighting an unusual investment opportunity, but one with a surprisingly broad range of attractions, including tax-free profit potential.

I’m grateful for their assistance with this article to my friends at Car & Classic, Europe’s largest online marketplace for classic and niche vehicles.

In this article I’ll reveal the attractions of investing in classic cars, and set out tips and advice for those new to this field. But let’s begin with some definitions…

What is a classic car?

Generally speaking, the label of classic car is applied to a vehicle at least 20 years old, with historical significance or scarcity value, and in good condition or restored to its original condition. The term ‘modern classic’ typically refers to such cars built in the 80s, 90s or 00s. 

Obviously these terms are somewhat subjective and based on a value judgement of the vehicle in question. Not every old car, even if still roadworthy, would be described as a classic, modern or otherwise.

Why invest in classic cars?

Investing in a classic car is unlikely to be solely a financial decision. 

Obviously it will appeal most to those who have an affinity for motor vehicles, along with an appreciation of their aesthetic quality and historical significance. Buyers will also need to be reasonably hands-on with their purchase, ensuring it is properly maintained and perhaps restored.

That being said, there are plenty of hard-nosed economic reasons for investing in classic cars too.

One is (of course) the money to be made. While most modern cars typically depreciate in value, classic cars can appreciate over time, sometimes quite spectacularly. 

Car & Classic’s chied executive Tom Wood quotes the examples of a Ford Escort RS1600i that sold for over £40,000 on their website, and an Aston Martin DB2/4 which sold in the Netherlands for an eye-watering 185,000 Euro (around £160,000). Clearly those prices are a lot more than these cars would have cost originally!

What’s more, any profit you make when selling your classic car will normally be tax-free. As discussed in this recent guest post on my Pounds and Sense blog, private cars can be sold for any price without attracting a charge to Capital Gains Tax (CGT) and that includes classic cars. 

• This is particularly significant with the recent large cuts in CGT tax-free allowances. Obviously tax laws may change in future – but according to the author of the article mentioned in the paragraph above (an associate in the private client team at law firm RWK Goodman), that is how the law stands currently.

A further attraction is that you can (if you wish) use your vehicle for everyday driving as well. This can also have financial benefits.

If your car is over 40 years old, it will normally be eligible for historic vehicle tax exemption. You are also exempt from the requirement for an annual MOT (though it’s advisable to continue testing your vehicle, to avoid safety concerns).

And in London cars over 40 years old are exempt from the unpopular ULEZ charge. Other cities with similar schemes have been following suit.

Finally, for investors looking to diversify their portfolios, classic cars can  provide an alternative asset class that may not necessarily follow the same market trends as stocks or bonds. Diversification is of course one of the key principles of successful investing.

Top tips

Clearly if you’re going to invest in classic cars, your budget will be a key consideration. 

The good news is you won’t need a king’s ransom to get started, especially if you’re willing to take on a bit of light restoration. For example, a shiny red Porsche 2.5 2+2 GT 1988 944 Coupé recently sold on the Car & Classic website for a relatively modest £5,000.

Some other important considerations for would-be classic car investors are listed below.

Historical significance: Cars that played a crucial role in history or are associated with iconic figures often command higher values. Models such as the Jaguar E-Type or Aston Martin DB5 (the classic James Bond car), for example, have a cultural and historical significance that adds to their allure.

Limited supply: Classic cars are finite in number, with many models no longer in production. This scarcity enhances their desirability – and as demand increases, so does their value.

Restoration potential: Classic cars in need of restoration can be purchased at a lower cost. Enthusiasts who enjoy the process of restoring a vehicle not only add value to the car but can gain a great sense of satisfaction from the project.

Aesthetic appeal: Classic cars are admired for their unique designs and aesthetic appeal. Models from certain decades or with specific design features may experience increased demand, driving up their value.

Maintenance and storage: Owning a classic car requires ongoing maintenance and proper storage to preserve its value. It’s crucial to factor in these costs when budgeting for your investment.

Documentation: It’s important that any car comes with proper documentation, including a detailed history, maintenance records and provenance. This documentation can significantly impact the car’s value.

Market trends: Staying informed about market trends in the classic car field is crucial. Certain models may experience spikes in value due to cultural trends or changes in buyer preferences. Magazines such as Classic Cars and websites such as Car & Classic can help with this. You can also seek advice from professionals in the field. Knowledgeable appraisers, auction houses and dealers can provide insights into current trends and help you make informed decisions. 

Emotional attachment: While a passion for classic cars can be a driving force (no pun intended!) it’s essential to strike a balance and approach any proposed investment with a level head. Emotional attachment has the potential to cloud judgement when making financial decisions. Sometimes a second opinion can be invaluable.

The latest trends

I asked Car & Classic what the latest trends in the classic car market are.

Dale Vinten, head of editorial at Car & Classic, replied: “The past six months have seen prices soften overall making it a very good time to buy, with expectations of the market picking up in spring 2024. The UK has been challenging with inflation, interest rates, conflicts and a lack of stability affecting the market, but interest remains strong for classics.

“Europe is generally faring better and we are seeing growth from the so-called ‘youngtimer’ sector – so-called modern classics that are easier to use and maintain on a daily basis than older vehicles. 90s and 00s vehicles have experienced the biggest growth in average number of email enquiries per listing over the past five years.

“My personal tip though is at the opposite end of the spectrum – the pre-war sector. These vehicles offer incredible value for money with more affordable prices since the peak back in 2015. These cars could be a solid investment but are also versatile, providing access to some of the great motoring events and historic competitions across the continent.”

Closing thoughts

If you’re looking for an unusual investment opportunity with good tax-free profit potential and offering great personal satisfaction as well, classic cars are well worth considering.

Just ensure you are well informed and well prepared for your new venture, and your family are on-side too.

If you have any comments or questions about this article, as ever, please do post them below.

Nick Daws writes for Pounds and Sense, a UK personal finance blog aimed especially (though not exclusively) at over-fifties.

Disclaimer: I am not a qualified financial adviser and nothing in this post should be construed as personal financial advice. You should always do your own ‘due diligence’ before investing and take professional advice if in any doubt how best to proceed. All investing carries a risk of loss.

Photo credits: Pexels