Car4Leasing Explains the New Capital Allowance Changes

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On the first of April, Capital Allowance changes are being imposed, which will affect the prices of cars being leased across the UK.

On the first of April, Capital Allowance changes are being imposed (HMRC http://www.hmrc.gov.uk/tiin/2012/tiin2146.pdf), which will affect the prices of cars being leased across the UK. There are two bands of cars within a range of Co2 emissions that will be affected. The early indications are that prices will increase on a vast amount of cars and we have already seen jumps of between £10 and £18 per month.

  •     Cars with Co2 Emissions of 131 g/km to 160 g/km will have their allowances reduced from 18% to 8%.
  •     Cars with Co2 Emissions of 110 g/km or less will have their allowances reduced from 18% to nothing.

This will not directly cause any difficulties for people wanting to lease, but it does mean that the finance companies will be able to claim less or no tax relief on the purchase price of the vehicles, which will result in a net increase in monthly rentals.

The Managing Director from Car4Leasing (http://www.car4leasing.co.uk/) had the following to say on the issue. “The year on year increase in personal car leasing and continued strong figures for company car leasing leaves little doubt that this change will directly affect the pocket of a large percentage of new car customers in the UK. The more fuel efficient green cars are the worst effected and this could widely be viewed as a stealth tax on the ever popular choice of an environmentally friendly car. A customer in London taking a car with a low Co2 to avoid congestion charge will now be penalised for having done so.”

Owing to the fact that the changes do not come into effect until the 1st of April 2013, all new cars leased by the 31st of March 2013 will not be affected. From the 1st of April 2013 onwards there is likely to be an increase in car leasing of vehicles within the Co2 ranges that remain unaffected.

This may also be a hard blow for manufacturers who have spent years reducing Co2 emissions on their vehicles to comply with green targets and government pressure. They have spent millions of pounds in investing in improved technologies to increase the fuel economy of cars and save the purse of the consumer, and with leasing making up large amounts of new car sales, this small tax is directly targeting those vehicles.

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Barry Mainstone
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