Purchase used car outright or lease electric via company?

[London1986]

Hi

I am after some advice on my next car and would like some opinions on the choices below. I am after something fairly fun to drive yet practical, ideally an SUV to please the wife.

So I have two very different cars with different financing options.

I will compare the two below with rough comparisons based on owning the car for 3 years

Car 1 - BMW X3 M40i (2018)

Purchase price: £35,000 used, 3 years old

Fuel: £1,500/year
Road tax: £165/year (£355 for one year only)
Insurance: £750/year
Service & MOT: 400/year
Total yearly: £2,815 + (355/3=118) x 3 years = £8,799

So £35k initial outlay with just under £9k running costs in those 3 years, however after the 3 years, I will still own the car which may potentially be worth around 20-25k?


Car 2 - Tesla Model Y

Brand new, business lease via my company. Only 2% BIK.

Deposit: £4,506 (exc. VAT) (9 monthly payments)
Monthly payments: £475.22 (exc. VAT) x 35 months
Admin: £230 (exc. VAT)
Total: £21,368 (exc. VAT)

Fuel: Minimal
Road tax: Free
Insurance: Through business??
Service & MOT: None

So with this route, my personal funds are saved. Leasing via my company seems a much more tax tax efficient way of owning a car.

To me it seems like a no brainer of doing the business lease route, but just wanted to get some thoughts in case there is anything else i've missed.

[Mjsibs]

I'm no expert on EV cars but surely fuel isn't minimal with the way electric bills are and rapid charge point fee's.

I may be way off but would like to know myself to be honest.

[SpeckledJim]

You haven’t included depreciation on the BMW, which may be enormous.

[London1986]

Mjsibs said:

I'm no expert on EV cars but surely fuel isn't minimal with the way electric bills are and rapid charge point fee's.

I may be way off but would like to know myself to be honest.

You are right, I am no expert either but I have heard things like charging at home/overnight benefits from a cheaper tarif, resulting in a cheaper rate of electricity but would be good for someone to confirm.

But even if not minimal, it should still be a fraction of where fuel prices are headed.

[London1986]

SpeckledJim said:

You haven’t included depreciation on the BMW, which may be enormous.

I did mention in my original post that it would likely be worth 20-25k. I don't imagine it being worth less than 20k in 3 years time.

[SpeckledJim]

London1986 said:

SpeckledJim said:

You haven’t included depreciation on the BMW, which may be enormous.

I did mention in my original post that it would likely be worth 20-25k. I don't imagine it being worth less than 20k in 3 years time.

But your maths includes the whole figures for the Tesla but not for the BMW.

They would work out approximately similar in overall cost, I’d say.

But the BMW is risking your money, and the Tesla is risking someone else’s. Who knows where we’ll be in three years.

[cerb4.5lee]

I'd personally go for the X3, but in todays world a Tesla is King, so that is probably the direction that you should go in I reckon.

[Al U]

I asked my accountant about this recently as have been considering it myself.

Not sure if I am teaching you to suck eggs here but I notice your figures for the lease are excluding VAT. You will be charged VAT, but can only claim back 50% of that so you will "suffer" 50% of the VAT as my accountant put it.

So when looking at figures it's probably best to work out the cost as "cost excluding vat + vat/2".

[London1986]

Al U said:

I asked my accountant about this recently as have been considering it myself.

Not sure if I am teaching you to suck eggs here but I notice your figures for the lease are excluding VAT. You will be charged VAT, but can only claim back 50% of that so you will "suffer" 50% of the VAT as my accountant put it.

So when looking at figures it's probably best to work out the cost as "cost excluding vat + vat/2".

Yes good point, so let's take all my figures and multiple by 1.1. That gives an overall cost of £23,504 over the 3 year term which is still very good.

The main benefit of this is that I am paying via the company as opposed to my personal bank account, freeing up the £30k I would have spent on the used car.

You say you are considering it, where are you currently in your thinking?

[Al U]

London1986 said:

You say you are considering it, where are you currently in your thinking?

Without going into too much detail, it basically comes down to whether I can justify it, is it really necessary to have a brand new electric car on the drive?

Yes the money is coming out of the company's pocket rather than mine, but the company is mine so it's still my pocket. Would that money be better spent going into a SIPP? I work from my home office 99% of the time so don't really need a car so I sold mine in February, the reality is that the wife would probably use it more than me. She has a car at the moment that we would probably keep and run into the ground (2016 diesel Astra).

Then again I could very comfortably afford it, it would be nice to have a brand new electric car on the drive, nice to have my "own" car again, wife would be very happy having access to it, can relax when there are fuel shortages/fuel costs increasing although energy price rises would have some impact on how much cheaper it is compared to a fossil fueled equivalent.

Personally though I don't know how long I will continue as a freelancer, that's what is stopping me from going ahead and doing it really. If I commit to say a 3 year lease and end up getting a job offer somewhere that I fancy over the next 3 years for security/career progression etc. I'll have to either terminate the lease or pay it personally. That and the fact that I don't really "need" the car at the moment and my neglected pension pot would be more grateful for the money spent on the lease.

Quite tough really. One other thing to consider which I did mull over with my accountant is actually just buying the car outright, this could be particularly sensible on something like a Tesla which doesn't seem to depreciate that much. Sell it at fair market value to WBAC etc. after however many years and probably lose less than the cost of the lease payments. However you can't reclaim any VAT that way, just the corp tax saving and obviously requires a bigger amount of capital upfront, so would need to do some calcs and figure out which you think is better in your own situation.

That was quite detailed after all

Edited by Al U on Thursday 7th July 07:26

[Lincsls1]

^^^ Based on what you've written in the above post, I would say your answer is very obvious.
Keep and run the 2016 Astra. It will cost next to nothing. It will be reliable. Save yourself a fortune.

[Al U]

Lincsls1 said:

^^^ Based on what you've written in the above post, I would say your answer is very obvious.
Keep and run the 2016 Astra. It will cost next to nothing. It will be reliable. Save yourself a fortune.

Yes, don't want to hijack the OP's thread but that is what I am doing at the moment. The wife does want a new to her car at some point soon though as she has had the Astra 5 years which is a very long time by her standards.

That's one of the attractions of getting the car through the company though, scratches her new car itch somewhat and can keep the Astra as a dependable 2nd option.

Won't be doing anything this side of Christmas though that's for sure.

Other than maybe buying a car specifically to do a European road trip but that will probably get it's own thread soon

Edited by Al U on Thursday 7th July 08:16

[raspy]

Why on earth would you want to buy a 3 year old used car when prices are artificially inflated at the moment? No brainer to lease an EV via the limited company, write off the cost (including insurance etc) and reduce your corporation tax bill for those 3 years. Then you are free to use your personal funds for whatever you like, whether it's saving, investing or anythin else.

[silent ninja]

Given that you're barely going to drive it, and your wife probably doesn't mind keeping the Astra a couple of years, the sensible advice here is do nothing. Car prices are over inflated and cars depreciate quite badly.

My advice, use all that cash to:
- go on more holidays/experiences
- build your pension
- invest generally - market is poo poo right now so you might be better off holding cash for 6 months or investing in gold. After that the depressed market for the next few years is a golden opportunity to build assets

Are you 100% debt free? To live free you must be debt free. A debt free person is a a rich person (yes most teens are richer than the majority of adults who've been caught in the hamster wheel of consumerism). In the UK we seem to enjoy living in perpetual debt and the misery and stress it brings. Clear everything, get rid of the tether!

Edited by silent ninja on Thursday 7th July 08:40

[Al U]

silent ninja said:

Given that you're barely going to drive it, and your wife probably doesn't mind keeping the Astra a couple of years, the sensible advice here is do nothing. Car prices are over inflated and cars depreciate quite badly.

My advice, use all that cash to:
- go on more holidays/experiences
- build your pension
- invest generally - market is poo poo right now so you might be better off holding cash for 6 months or investing in gold. After that the depressed market for the next few years is a golden opportunity to build assets

Are you 100% debt free? A debt free person has freedom. It's a rich person. In the UK we seem to enjoy living in perpetual debt and the misery and stress it brings. Clear everything, get rid of the tether!

This is not my thread, and while I appreciate the good advice you've given I wasn't asking for it, just answering the OP's question.

[f1racer]

Personally, I wouldn't pay £35k for an X3 M40i that is 3 years old - unless you absolutely need/want it. It wasn't that long ago a new one with discounts was about £43k. I think the £20-25k value in 3 years time is optimistic and based on the unusual circumstances we are in. When I looked at one pre-covid, I recall the estimate value in year 4 was £21k.

Considering the values of used Teslas, the leasing costs are horrendous. However, they only reflect Tesla's confidence in the future values of their cars. If you really need a car, I would say this is the sensible way to do it. A lot of money but either way it is not cheap.

[London1986]

Very interesting, thanks for the detailed reply.

Al U said:

Without going into too much detail, it basically comes down to whether I can justify it, is it really necessary to have a brand new electric car on the drive?

I hear you. However for me, I care less about the fact it's brand new, I'm happy with a used car, however I do get enjoyment from cars and driving, so regardless of whether I buy or lease, cars are expensive!

Al U said:

Yes the money is coming out of the company's pocket rather than mine, but the company is mine so it's still my pocket. Would that money be better spent going into a SIPP? I work from my home office 99% of the time so don't really need a car so I sold mine in February, the reality is that the wife would probably use it more than me. She has a car at the moment that we would probably keep and run into the ground (2016 diesel Astra).

Of course. We can all get a honda Jazz and put the money to better use. But then what? We don't get to spend our hard earned money every now and then on things we enjoy? I do think it's important to get your house in order before making a purchase like this, too often I see people that rent, can't afford to buy their own house, etc yet have the latest 21/22 plate german cars and it just doesn't make sense. However when you do work hard, I think it is important to treat yourself every now and then too.

Regarding using the company's money, yes it is still yours but it's pre-tax money, that does make a difference. Even more beneficial if you have already maxed out your salary and dividends whilst remaining a lower rate tax payer.

Al U said:

Personally though I don't know how long I will continue as a freelancer, that's what is stopping me from going ahead and doing it really. If I commit to say a 3 year lease and end up getting a job offer somewhere that I fancy over the next 3 years for security/career progression etc. I'll have to either terminate the lease or pay it personally. That and the fact that I don't really "need" the car at the moment and my neglected pension pot would be more grateful for the money spent on the lease.

Like you, I'm also a freelancer and yes, thinking about your pension is also wise. But like I said above, it depends how you look at it. No-one needs to spend x amount on a fancy car, they want to. It will never be considered sensible to do so vs putting money in your pension. I think the fact you don't need the car makes sense though, especially if you won't be driving it much. Fortunately for me, it will be my daily driver so I will hopefully get my money's worth.

Al U said:

Quite tough really. One other thing to consider which I did mull over with my accountant is actually just buying the car outright, this could be particularly sensible on something like a Tesla which doesn't seem to depreciate that much. Sell it at fair market value to WBAC etc. after however many years and probably lose less than the cost of the lease payments. However you can't reclaim any VAT that way, just the corp tax saving and obviously requires a bigger amount of capital upfront, so would need to do some calcs and figure out which you think is better in your own situation.

I actually disagree there, I think it's better to lease an electric car. The second hand market is a bit of an unknown right now, it's not clear how the batteries age, what happens to the range etc which would definitely affect resale values, plus as you mention the bigger upfront payment.

[London1986]

raspy said:

Why on earth would you want to buy a 3 year old used car when prices are artificially inflated at the moment? No brainer to lease an EV via the limited company, write off the cost (including insurance etc) and reduce your corporation tax bill for those 3 years. Then you are free to use your personal funds for whatever you like, whether it's saving, investing or anythin else.

I agree it does seem like a no brainer. Thanks for confirming!

[London1986]

Al U said:

This is not my thread, and while I appreciate the good advice you've given I wasn't asking for it, just answering the OP's question.

Appreciate it mate, but grateful for your responses so far. You seem a lot like me a few years ago, very sensible

TBH in your shoes I'd also stick where you are