Depreciation Calculator
Depreciation measures how an asset loses value over time. Choose straight-line (equal amount each year) or declining balance (a fixed percentage of the remaining value each year). See the year-by-year breakdown below.
Asset details
The asset depreciates to £0 book value at the end of its useful life.
Declining balance never fully reaches £0; the table shows book value approaching zero over time.
Related: Lease vs Buy · Car Loan
How the Depreciation Calculator works
This calculator supports two depreciation methods. Straight-line depreciation divides the asset's cost evenly across its useful life, so the same amount is written off each year until the book value reaches zero. It is simple, predictable, and widely used in UK business accounting for plant, equipment, and fixtures. The annual charge is: Purchase Price ÷ Useful Life.
Declining balance (also called reducing balance) applies a fixed percentage to the remaining book value each year, producing a higher charge in early years that reduces over time. This better reflects the real-world pattern of most assets — including cars, which lose the most value when new. The UK car depreciation preset uses 20% in year one and 15% thereafter, which approximates the typical rate for a mainstream new car.
For tax purposes, HMRC uses its own rules for capital allowances, which may differ significantly from accounting depreciation. Businesses should consult HMRC guidance or an accountant when calculating deductible amounts. The figures produced by this calculator are for planning and estimation purposes only and represent the accounting (book) value, not necessarily the taxable value.
Frequently asked questions
How quickly do cars depreciate in the UK?
New cars in the UK typically lose around 15–25% of their value in the first year and around 50–60% of their value within three years. Depreciation is fastest in the early years and slows down as the car ages. Factors that affect depreciation include make, model, mileage, condition, fuel type, and colour. Electric vehicles and some premium brands can hold their value better than average.
What is straight-line depreciation?
Straight-line depreciation spreads the cost of an asset evenly over its useful life. The annual depreciation charge is: (Purchase Price − Residual Value) ÷ Useful Life. For example, a £20,000 asset with a 5-year life and no residual value depreciates by £4,000 per year. It is simple to calculate and widely used in UK accounting, though it does not reflect how assets like cars actually lose value faster when new.
Which cars hold their value best?
In the UK, cars that typically hold their value best include certain Japanese brands (Toyota, Honda), premium German manufacturers (Porsche, Mercedes-Benz), and popular SUVs and crossovers. Limited-edition or low-production models can also retain value well. Reliable reputations, low running costs, and strong demand in the used market are the key drivers of strong residual values. Diesel vehicles have seen steeper depreciation in recent years due to changing policy and buyer sentiment.
How does depreciation affect the true cost of ownership?
Depreciation is often the largest single cost of car ownership, easily outweighing fuel, insurance, or servicing over a typical three-to-five year ownership period. If a car loses £8,000 in value over three years, that equates to over £220 per month before any other costs. Choosing a car with low predicted depreciation — or buying a used car that has already taken its initial value hit — can significantly reduce the true cost of driving.