I've thought of one narrow situation where depreciation might be a good thing - inheritance tax.
Say you have a large amount of cash on deposit and an estate that is a small amount (say £20k) over the IHT limit. Assume that you're old enough or ill enough to make another 7 years look unlikely. If you invest the cash, it's going to grow and make the problem worse. But, if you buy the right car, it could easliy lose £25k in a short space of time. Go for a classic depreciator - a big loaded 7 series BMW, say, or a Maserati. New, obviously.
Bingo - when you depart this earth in 6-12 months time, your estate is now worth less than Gordon's limit so no IHT is payable. And the car can be sold on quickly to a dealer who will be happy to give you a nice low valuation in writing.
OK, so the range of applicable circumstances are pretty narrow. Nevertheless, I can't see why it shouldn't work. What have I missed?
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Instead of giving 40% of the money away in tax, you've thrown 80% of it away in depreciation?
(You only pay IHT on the amount over the limit, rather than the whole amount).
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Dear Mr Patently,
As you know Big Brother is watching and it has come to my attention that you are the brains behind a new scam aimed solely at drepriving me of much needed revenue to spend on the sort of worthy causes this government has deservedly become renowned for.
I have made a suitable note in my diary and will forthwith be amending the IHT regulations to prevent just the sort of thing you describe. In the meantime I have brought in emergency powers to tax all Porsche and BMW owners at 150% of the purchase price annually. However, please rest assured that your additional contributions will allow us to carry on our visionary work and commence preparations for the banning of playground taunting and the setting up of suitably equipped offices and living quarters for all those international terrorists, despots and fraudsters who quite understandably wish to claim asylum here.
Yours GB.
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All I ask is for a smile with which to start each morning. Thank you, V-man!
Actually, though, sometimes it feels as if GB has already done that...
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Can I be the first to say, I LOVE depreciation.
It allows me to buy a car for a fraction of it's suggested retail price, only 2 or 3 years down the line.
Of course, I then lose money on it too, but a lot less than the previous owner(s) did.
For instance, on my current car, I spent about 33% of the new purchase price. Since then it has lost less than £2000 in value, in 2.5 years. Comparative bargain, I reckon.
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BB,
I remember when a colleague bought a 740i for about the same price as my new 323i - about 1/3 of the 7's original list price, at only 2 1/2 years old. I thought that he had done very well.
Except when he sold it at 5 1/2 years for about 10% of the value of my 323.....
It can work, but you need to pick the right one...
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>>Assume that you're old enough or ill enough to make another 7 years look unlikely>>
Either you go out and spend like mad for a while on holidays etc (spending the kids' inheritence) or you simply don't worry about giving the Government a few more bob.
We give it all to them now anyway so what's the difference...:-))
PS
You don't feel ill by any chance...?
There's usually a reason for such questions, supposedly based on the fact you know a friend, relative etc who needs to know...:-)
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Not much of an IHT dodge, that.
For argument's sake, your house is worth £250k and you have £20k in cash.
IHT threshold is £263k. Tax payable if you get run down by a bus on the way to the dealer for your new Pug 607 (we're assuming maximum depreciation, rather than fun here) is going to be £2,800 - 40% of the gap between your estate value and the threshold.
You can also give £3k away tax free in any tax year - if you live another year from now that effectively gives you two tax years, reducing the tax payable on death to £400 - 40% of the £1k over the threshhold. Except that IHT limits actually follow inflation and next year, you'd be below the limit should inflation be above 2.66%.
Of course, if IHT were payable on the whole estate and not only on the excess above £263k, it'd be a fantastic way to get out of paying tax, but in reality nobody could be bothered.
(And I'm assuming there are no other trusts, etc., in place, here - there are ways to take things further again.)
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Friend of mine jst bought an M5 for 23K. Beautiful car and like new inside and out. 60k car new! One previous private owner so he took a 37k hit! Even if I had the money I wouldn't do it I'm too mean but I'm sure glad there are people out there that will.
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I'd only buy a new car if a) I was well-off enough to easily afford it or b) I was planning to keep the car for 12 years plus.
Cheers, SS
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I think I've bored you all before with the advantages of depreciation. Bazza Bear is on the right lines.
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