Such has been the colossal demand for classic cars that in recent years they have become better appreciating assets than property, art, fine wine and vintage jewellery.
But getting onto the collectible car ladder isn’t easy, given that those considered the best blue-chip investments are already immensely expensive. For example, according to specialist Hagerty an excellent condition Series II Jaguar E-Type roadster has an average value of £85,900 – and that’s not even the most desirable version.
However, there is now a selection of companies offering the opportunity to invest in a ‘share’ of a car, at a considerably more affordable price than buying outright.
But does this allow you to use – or even see – the car? Can you invest in more than one vehicle? And what are the pitfalls of sinking money into motoring assets? We’ve teamed up with classic car experts at Hagerty to explain all.
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The general term for buying shares in classic cars is ‘fractional ownership’ and provides a group of people the chance to reap the rewards if motors go up in value – granted that actually happens, as prices can go down as well as up.
But this isn’t as simple, protected, or regulated in the same way as buying stock market-listed shares.
The concept originates from property timeshares and private aircrafts, where people could buy a share of a plan to use for an agreed period.
This model has been been extended to other expensive assets, including boats and even stamps – so it’s no surprise to see classic cars being added to that list.
How does owning a share of a classic car work?
An investment company will earmark models it thinks are ripe for a surge in value in the short, medium-or long-term, with guidance from experts within owner’s clubs and other industry specialists.
The up-to-date value of the vehicle is determined with reference to leading auction houses and specialists and regularly updated.
To allow shares to be bought and sold in it, and to give shareholders 100 per cent control, the car is converted into a limited company, at least in the UK.
Its ‘opening value’ is then divided into shares of a certain face value.
These typically number 1,000 shares, which is deemed a number that makes each share more affordable. So, for example, a £50,000 Porsche could be divided into individual shares costing £50. If it’s value goes up, so does the value each share represents.
Depending on the investment company, an operations fee per share to cover annual maintenance, insurance and storage costs may also be charged.
For example, one of the leading UK-based businesses, The Car Crowd, charges up to 10 per cent of the initial car cost and that covers a period of five years.
A restriction on the number of shares that can be purchased by a single investor is also applied – for The Car Crowd limited to 100.
And when a shareholder wishes to dispose of their shares, they won’t incur any fees.
The Car Crowd is one of the UK’s leading vehicle shared-ownership businesses and tends to offer only modern classic models
How much will it cost me to own a fraction of a collectible car?
The Car Crowd says it plans to add 25 new cars each year to its portfolio, which are predominantly modern classics that are at a relatively low point on the appreciation curve.
Models are handpicked based on reputation and desirability, production numbers, condition, mileage and provenance.
Whether the vehicle is a limited edition or represents a technical or design milestone is also considered.
Recent ‘flotations’ of modern-classic cars listed on The Car Crowd rang from £18.90 per share for a Peugeot 205 GTi eighties hot hatch to £220 for a limited-run Spyker C8 supercar.
Want to put some cash into a Ferrari? A 360 Modena from the early noughties will set you back £77 per share, while a Ford Sierra Cosworth – one of the Fast Ford models from the eighties to soar in value in recent years – can be had for £77 a share.
Companies identify cars low on the appreciation curve, which tend to be modern classics with plenty of room to increase in value. A shared in a Ford Sierra Cosworth is around £77
How do you make money as an investor?
Each car offered under fractional ownership is periodically made available for share trading, when shares can be bought and sold in it – usually every six months.
But the ability to buy in or sell out requires there to be a willing party on the other side and as with any illiquid investment (a harder to trade one, such as property) this can make getting money out quickly tough.
One of the biggest companies offering classic car share opportunities, Rally Rd, claims that over 12 months, investors might see a 15 per cent return on their money.
Half year market analysis reports are provided to shareholders, so they can decide whether to stick or twist with the current motor they have invested in.
If a shareholder decides to opt out, the return on investment is returned to the shareholder, while The Car Crowd takes 10 per cent of the vehicle’s appreciation to cover its expenses.
The company emphasises that shareholders are ‘in control and vote whether to hold or sell cars’.
In addition to making money from a vehicle appreciating, investors can earn a share of their car’s appearance revenue.
For example, The Car Crowd rents out cars to display at shows and other events, meaning that an investor with a 10 per cent stake could earn £25 from a £250 appearance fee.
Jon Williams, managing director of Price Ferguson (Farnham), a wealth management company, told Hagerty that with fractional ownership, investors are unlikely to make significant losses.
However, his advice is to invest across a ‘range of investments as part of a wider share portfolio’. and not just put your money into classic cars.
Fractional ownership schemes are aimed at younger car fans who can’t afford to purchase a classic – or modern classic – outright. Though even if they do invest, they can’t drive the car
Can you drive the car you own a share of?
A number of firms today now provide fractional ownership opportunities for modern classic cars, which are ripe for a rise in value and therefore provide the best profits for investors.
However, because cars come with the inherent risk of being damaged or crashed, many management companies don’t allow for the cars to be driven.
The Car Crowd and Rally Rd both do not allow shareholders to drive the vehicles.
It means owning a share of a classic car isn’t about the joys of using it but the financial benefits it offers.
They claim investors enjoy the idea of having a share in a sought-after car and the feeling of ownership it gives them, rather than adding mileage to the vehicle and in turn devaluing it at the same time.
That’s very different to the pleasures found from owning a classic car, whether they are driving it, going to shows, working on it, or joining clubs with other owners.
It’s more like replicating ownership of shares in a businesses, where there is little in terms of a physical benefit to an investment.
According to Hagerty, fractional companies do portray that they are as enthusiastic about the cars as any owner and want to bring them out of private collections to be enjoyed by those who have shares in them – even if they can’t drive them.
In that spirit, The Car Crowd, for example, is in the process of opening a café near Newark, in Nottinghamshire, where shareholders, including those who might also own a classic car, can meet fellow investors.
Do you have to pay tax on profits?
Unlike owning a classic car, investing in one in this way incurs capital gains tax. Assuming the investor’s annual £13,500 capital gains tax-free allowance has not been exceeded, then there is no tax liability.
If it has been then capital gains tax is payable and charged at either 10 per cent or 18 per cent, depending on whether they are a basic or higher rate taxpayer once capital gains have been added to other income.
Who is typically investing in classic cars today?
In an interview with Hagerty, Chris Bruno, founder of Rally Rd, claims most investors are in the thirties and have a passion for cars but are not quite in a position to buy their own.
It is for this reason that the vehicles being selected are predominantly modern classics, as they are cars this demographic would have drooled over in their early years and will have plenty of knowledge of, via TV shows such as Top Gear, YouTube channels and – of course – video games.
The clientele are usually financially savvy and understand investing, despite being relatively new to it.
Given the age profile, much of the marketing – especially by The Car Crowd in the UK – is via social media, with a strong presence on Instagram and Facebooks.
The Car Crowd uses social media to market partial ownership opportunities for modern-classic cars, with the majority of investors being in their thirties
Do collectors frown on fractional ownership schemes?
Seasoned vehicle collectors are increasingly fearful of shared classic car ownership destabilising the market, especially with values already at such a high.
Some are also critical of the fact the cars can’t be driven by those who own them.
Although most of the abolsute highest -value motors bought by single parties tend to be stored and never used in order to preserve their value, they are far outnumbered by owners of cars that do at least put a few miles under their belts each year.
Is fractional car ownership regulated?
In the UK, The Car Crowd is an appointed representative of Kession Capital Ltd, which is authorised and regulated by the Financial Conduct Authority.
Following all relevant UK crowdfunding regulations laid down by the FCA, The Car Crowd cannot give estimates of future returns.
However, it cites the Knight Frank Wealth report that showed an average 19 per cent annual growth in the values of classic cars over the past 10 years.
What happens to your investment if a company goes bust?
If a worst-case scenario was to happen to The Car Crowd and it were to go out of business, it says the investment would be included in a regulated wind-down process that protects all investors.
FCA-regulated GoJi Investments, which manages all of the funds for The Car Crowd, would sell the cars on an online auction site. All funds received would be returned to investors, with no fees deducted.
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