By Ian Petts, Client Services Director, Equiom Monaco
We are seeing increased activity in demand for advice related to optimising structures for expensive new cars and also second hand collector vehicles.
There is significant diversity in the ownership goals for these assets. Some owners wish to use those vehicles personally, others in rallies and international events. Some view them as an investment opportunity, holding on to them for possible capital gain in the future, speculating that the value will increase for limited editions or collector’s items. Whatever the reason may be for holding these prized assets, all owners need to understand the preparations involved in buying, selling and owning supercars.
With manufacturers realising there is an elite class of owner prepared to pay for the ultimate supercar, factory performance departments are producing cars like La Ferrari costing nearly $1.5 million, the McLaren P1 pricing at over $1.6 million, and the new Mercedes AMG One car costing upwards of $2.8 million.
Further second hand values can be far in excess of this. Nigel Mansell’s championship winning race car recently sold for $3.38 million at auction and last year’s Sotheby auction of a Ferrari 250 GTO broke the $48 million barrier. The price of supercars has now entered the realms of mega yacht values.
This trend has led to family offices and the ultra-wealthy beginning to plan early on in the process by taking steps to set up structures, monitor them and determine the tax exposure of the asset.
Using a structure
It is very wise to ensure that high value supercar assets like these are held correctly in an appropriate structure with a knowledgeable and experienced team at the helm. Such a structure should be optimum for sales tax, any import duties and consider the expense of the process of storing, maintaining, insuring and repairing the car, as well as the potential for tax on any possible future gain.
Building a structure for a supercar asset will facilitate the transfer of the asset upon sale. The anonymous nature of a structure also protects against any negative publicity for the owner in the event of unfortunate accidents or allegations of misuse of the car. There is also the consideration of necessary importations, logistics, insurance, loans, broker fees and finance against the vehicle.
Tax on supercars
One of the most significant charges for luxury assets like supercars is VAT (Value Added Tax), otherwise known as sales tax. Generally the principle of VAT is that the end user should pay, so if the vehicle is being used in the European Union and if there are personal elements to the use of the vehicle, then VAT would generally have to be paid. VAT rates in Europe vary per country from Luxembourg’s 17% to Hungary’s 27% and are applied on the sale value of the car.
The use of corporate ownership along with available reliefs within the EU Customs and VAT regimes, such as the Carnet de Passage en Douanes and Temporary Admission, offer opportunities to mitigate VAT and other import charges. Deferring VAT is also possible through lease payments. And there are of course VAT exemptions on certain cars, although these generally tend to be utility and delivery vehicles for business use, and not luxury cars. It is advisable to seek advice on VAT liabilities when buying, owning and selling a supercar. Like many luxury assets, it is not always straightforward what and when you are required to pay.
Polluter pays economics
Supercars’ high consumption performance engines have been a tax target for governments. In an effort to promote electric car technologies, and confirm environmental credentials of policy making, European governments have been applying eco taxes and penalties. In some countries these taxes increase exponentially for the most polluting cars. France has a new ecological tax which is based on WLTP (Worldwide Harmonized Light Vehicles Test Procedure) emissions. Known as the ‘Malus Ecologique’ this tax punishes the highest polluters at the point of purchase. In 2020 the tax will now apply from 110 grams CO2/KM and can cost €20,000 for cars going over 212 grams CO2/KM. Even a moderately powered Mercedes executive car reaches these high CO2 thresholds bringing the government a significant tax dividend. But with a Ferrari Pista 488 having a quoted combined 282 grams CO2/KM, and a Lamborghini Aventador SVJ having a quoted 486 grams CO2/KM the category of supercar easily sits above the highest tax ecological brackets.
The cost of insuring a supercar for road use should not be underestimated and it is worth getting experienced advisors involved since costs and conditions of insurance can vary enormously between owners. It is usual for an individual and their family office to use a specialist broker and insure a number of cars through one insurer. It is important to specify in the insurance contract any track use, agreed mileage, agreed value and confirmation that the car will be repaired from an official dealer in the insurance package. Depending on the driver’s history, age and location, the cost of annual insurance can be 0.75 – 7.5% of the fully optioned vehicle. Owners can still be considered as a young driver at the age of 40, and premiums can be as high as €40,000 for the annual insurance of a Bugatti Chiron.
It is common for a whole fleet to be covered by a family office, and the actual individual supercar insurance cost to be opaque to the owner, since it falls within the cost of a fleet of cars with a broker’s cost coming from the commission of the total insurance value. Cutting costs on the insurance and broker can, however, be a false economy. Claims management and project management of the restoration of a supercar after an accident is a specialist skill set. Negotiating for the repair to be covered, costing out the repair works correctly, and ensuring the quality of the repair are essential to preserve the value of the car’s investment.
For owners just seeking capital gain and to hold cars for investment purposes, storage can be arranged in bonded warehouses, to protect and suspend customs and duties and to give physical protection from the asset being stolen. Some owners go to extreme lengths; former military bunkers and bonded warehouses in Switzerland have been known to be used for secure storage of select vehicles held for resale and can be used to limit viewing to selected and serious buyers only.
Enabling and registering the use of cars in Europe can prove to be a challenge, especially if it is a particularly exotic car coming from outside the EU.
Certificates of conformity need to be arranged in advance of any registration. If cars are for exhibition or demonstration there is also the temporary import scheme for six months or several shorter visits over 12 months, under which duties and customs can be suspended; but there are strict criteria in each jurisdiction. For example if a car is coming from the Middle East with Arabic-scripted number plates, it will need to display a temporary Q plate in the UK.
Jurisdictions also have different treatments for cars if they are either assigned to a company or to an individual. In some jurisdictions, it is just not possible to assign luxury cars as company cars, or in other jurisdictions expensive and punitive benefit in kind taxes can be also applicable. The advantage of having a car in a company structure is that there would be the possibility to offset costs such as car repairs, insurance, garaging, cleaning, fuel, annual servicing, etc which can run into significant sums, against the income of the structure. Luxury cars can be wrapped in logos and are used increasingly by influencers and marketing companies to gain brand awareness.
Supercar ownership is a complex undertaking. Equiom has specialists offering solutions to navigate the physical and practical elements of supercar ownership. Our aim is to optimise the fiscal burden and reduce the administrative hassle so owners can enjoy their cars as their designers intended. Our philosophy is aligned with Enzo Ferrari who is quoted as saying, ‘if you can dream it you can do it!’
This article has been carefully prepared, but it has been written in general terms and should be seen as broad guidance only. The article cannot be relied upon to cover specific situations and you should not act, or refrain from acting, upon the information contained therein without obtaining specific professional advice. Please contact Equiom to discuss these matters in the context of your particular circumstance. Equiom Group, its partners, employees and agents do not accept or assume any liability or duty of care for any loss arising from any action taken or not taken by anyone in reliance on the information in this article or for any decision based on it.