Every book, radio show or podcast for people wanting to become/stay wealthy would advise against leasing a car. I agree a car itself is an expensive toy and lease even adds to this equation, but...
If I have a choice of buying a car, for which I would need to withdrawal my limited company funds and hitting higher tax bracket of 32.5%, or, leasing it via personal car hire, wouldn't it make more sense to lease it?
Let's say the car costs £25k - it means I would have to pay £8125 in tax which totals to £33,125.00 or - pay an initial payment of £1,800.00 + let's say 24 * £300 which totals to £9,000.00
I am assuming that for the yearly lease cost, I would have to pay the higher bracket tax because the funds would be withdrawn from my LTD company account which is £2,925.00 thus the total cost of the lease is £11,925.00.
Now, if it was a purchase of the car for cash, in 2 years the car would lose value, I think it's safe to say it would lose £5,000.00 over 2 year period. So I could sell it for £20,000.00.
From the above calculations, it seems that if I was planning to drive the car for two years, it's cheaper to lease it than buy it for cash under these circumstances.
Note: Higher tax bracket on dividends over £32,000.00 a year is 32.5% - I am assuming I have already reached the limit of £32k
- initial cost: -£1,800.00
- initial tax: -£585
- ongoing cost: -£300/month
- ongoing tax: -£97.5/month
- lost value of car: £0
- total: -£11,925.00
- initial cost: -£25,000.00
- initial tax: -£8,125.00
- ongoing cost: £0
- ongoing tax: £0
- lost value of car: -£5000 (over 2 years)
- car sold: +£20,000.00
- total: -£18,125.00
I am not taking under consideration car insurance, fuel nor repair costs as these are irrelevant for the purpose of this question.
Am I missing something or the financial advisory books just focusing on people working as employees?