Contract Hire - 'unrelated' third party purchase...

Vulgar_Prince

Hi all,

My sister in law has been asked to help out her father who wants to buy his car that is about to reach the end of it's Contract Hire Agreement.

He's been told by the company, that he himself can not purchase the car but an unrelated/independant third party can. This would be where my sister comes in.

The plan would be for her to buy the car and then sell it back to him.

Is this legal? What's the reason why a 'related' third party can't buy the car? Why can't he buy it directly?

Practically, it's obviously very straightforward (buy and then private sale) but I just wonder whether she should do it.

Thanks in advance for your help/advice.

bigjl

This is very common, I know several people that sold the car to a mate, send off the V5 then bought it back a month later.

You are only duty bound to dispose of the car for the lease company, then give them a fee which is normally about 10% of the final value of the vehicle.

If the person you sell it to decides to sell it back to you for the same money then it is technically legal, maybe not in the spirit, but is true to the letter.

I believe it is something to do with tax, the lease company has had tax relief for the vehicle during the time the leased it, if they sell it and make a profit then they may have to pay back the tax relief.

Somebody will know this better than I do, buut from memory of when I was self employed many years ago it works something like that.

Flyboy152

Vulgar_Prince wrote: »

Hi all,

My sister in law has been asked to help out her father who wants to buy his car that is about to reach the end of it's Contract Hire Agreement.

He's been told by the company, that he himself can not purchase the car but an unrelated/independant third party can. This would be where my sister comes in.

The plan would be for her to buy the car and then sell it back to him.

Is this legal? What's the reason why a 'related' third party can't buy the car? Why can't he buy it directly?

Practically, it's obviously very straightforward (buy and then private sale) but I just wonder whether she should do it.

Thanks in advance for your help/advice.

Your sister-in-law will not be considered unrelated, nor independent of her father. His best bet is to seek out a reliable friend to act as the third party.

Vulgar_Prince

Thanks chaps for coming back.

Flyboy - my question was, if my sister in law did go ahead with it (knowing that she is indeed related), what are the implications of doing so, if any?

Flyboy152

Vulgar_Prince wrote: »

Thanks chaps for coming back.

Flyboy - my question was, if my sister in law did go ahead with it (knowing that she is indeed related), what are the implications of doing so, if any?

If she does not declare a familial interest, depending on what questions are asked by the lease company and HMRC, both she and her father may be committing fraud.

pongowaring123

Is is a Business Contract Hire agreement or a Personal Contract Hire agreement?

The reason you cannot purchase a car you have leased is due to the tax benefits a company receives throught the duration of the contract.

If it is a business contract hire agreement a third party can be anyone except the the company or associated directors so providing the sister-in-law is not part of the company she can legally purchase it.

With regards to then immediately selling it back to her father; that is a grey area.

SteveJW

Don't know if this applies to a personal lease

I work for a local authority, many of our vehicles are on operational leases, we cannot purchase direct from the lessor at the end of the lease (tax implications etc) We use a third party to assist in the purchase, it's a paper excercise and often goes through on the same day


Steve

Flyboy152

pongowaring123 wrote: »

Is is a Business Contract Hire agreement or a Personal Contract Hire agreement?

The reason you cannot purchase a car you have leased is due to the tax benefits a company receives throught the duration of the contract.

If it is a business contract hire agreement a third party can be anyone except the the company or associated directors so providing the sister-in-law is not part of the company she can legally purchase it.

With regards to then immediately selling it back to her father; that is a grey area.

The third party must not have any connections to the principle, whether they are business or familial and in-laws will more than likely be stretching that definition. HMRC are not stupid and they do check. On request, the third party will have to declare that they have no connection with the original lessor. Many lease providers have arrangements with other companies to act as third party buyers.