If I make a profit when selling or trading in my car, is this taxable?

In the current second-hand car market, it is common for people to be offered payment on return of their vehicle at the end of a PCP lease agreement. One would imagine that if the leaseholder refused this offer and sold privately, they may be able to make a greater profit. Alternatively, if a car has been purchased second-hand previously, it may be possible to sell this and even make an overall profit.

So, the question is, is this taxable?

Selling a previously purchased car at a profit

It is likely that when a car has been purchased, driven for a period without a view to making a profit on sale, and then sold, this would not then be a trading transaction. Given the depreciating nature of cars, it is likely that this covers most cases where an individual is selling a car they owned prior to the rise in second-hand prices.

This would therefore represent a capital disposal, and ordinarily would be subject to capital gains tax (CGT) on these profits. However, a car is exempt from CGT, and therefore any disposal of a car at a profit under these circumstances would not trigger a tax charge.

Returning a car at the end of a lease for a cash payment

If a car is returned at the end of a lease, again, it is unlikely this represents a trading transaction. This is because there would ordinarily not have been an intention to dispose of the car at a profit at the end of a lease.

This therefore represents a capital disposal, however, this cannot be of the car because the seller has never owned the vehicle. Instead, this represents a disposal of the option to purchase, and is not therefore covered by the exemption for cars. In most cases, this will be only an academic difference as the disposal of the option will be covered by the annual exemption of £12,300 in any case.

However, if the seller has other chargeable gains during the year, it is possible that CGT will become payable on the disposal of this option. This could give rise to a tax charge of up to 20% of the proceeds from the disposal.

Purchasing a car at the end of a lease and re-selling at a profit

If the car is not returned, and instead is purchased with a view to resale, this would likely convert the sale into a trading transaction. The impact of this is that the profit made on resale above the £1,000 trading allowance would be subject to income tax at the seller’s marginal rate, and this could also impact on the personal allowance. Additionally, the transaction would be subject to Class 2 and Class 4 NIC.

This gives rise to tax charges of up to 62% on the difference between the balloon payment and sales proceeds, and raises questions as to whether it is worthwhile going this route rather than simply accepting the offer by the PCP company.

This trading transaction is also likely to lead to a requirement to register as self-employed with HMRC, and potentially complete a self-assessment tax return.


If you are nearing the end of a lease on a second-hand car and expect to be offered a premium, you may get a better offer selling privately. However, it would be worthwhile to ask us to prepare comparative calculations to ensure that, after tax, there remains a net benefit.

There are unlikely to be any tax consequences of selling a car which has already been owned and used as your vehicle for a period of time.

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