Chattels were once a term the landed gentry may have used to refer to the private property of the peasantry. These possessions were restricted to highly mobile items like livestock, as the latter weren’t allowed to own their land, or houses in dark mediaeval days, These days, however, capital gains tax and chattels have mingled to such an extent to keep solicitors happily bickering. We investigate the situation to help us all understand it a little better.
Chattels and Capital Gains Tax Disentangled
How Much Is Capital Gains Tax?
Capital gains tax (CGT) is a levy His Majesty’s Revenue and Customs (HMRC) charges us if we sell, give away, exchange or otherwise dispose of an asset and make a profit or ‘gain’. However, as Low Incomes Tax Reform Group explains, the tax is on the gain, and not the amount we receive. The net extends far, and may even include overseas assets we trade.
ANNUAL CAPITAL GAINS TAX EXEMPTION
The HMRC is prepared to let us off if we make a small, successful flutter. To be more specific, the 2022 / 2023 annual exemption is £12,300 but we may not carry it forward.
HOW HMRC CALCULATES CAPITAL GAINS TAX
- The transfer of an asset upon death is a capital gains tax-exempt disposal.
- Outside of that, basic-rate tax payers pay either 10%, or 18% of their non-exempt capital gain.
- If their CGT-related income pushes them to a higher band, then they pay some tax at both rates.
- Higher, or additional-rate tax payers pay either 20% or 28% of their non-exempt capital gain.
- Both categories only pay the higher rate if the asset is residential property, falling outside private residence relief.
- A special business rate of 10% (previously entrepreneur’s relief) applies to the sale of certain business assets only.
The above Capital Gains Tax arrangements apply to taxpayers living in England, Scotland, and Wales.
WASTING AND NON-WASTING CHATTELS
Chattels, as we already mentioned, are movable property we can touch and hold. Notable examples Avery Associates regularly values include art, antiques, jewellery, fine wine, racehorses, etc. Some of these things are more permanent, and that’s where capital gains tax and chattels becomes interesting:
Wasting Chattels
HMRC defines wasting chattels as tangible, personal possessions with a useful life not exceeding 50 years. The Association of Chartered Certified Accountants (ACCA) calculates this period from the moment of acquisition going forward. However, the purpose for obtaining the item also has a bearing.
Movable chattel owners should be well-pleased to know these are exempt from capital gains tax, although losses on them are quid pro quo not allowable either. This policy also extends to machinery, which HMRC regards as lasting less than fifty years without exception. Although this does not necessarily mean there is no inheritance tax involved.
Much the same logic applies to anything with moving pieces that perform work. Hence clocks and watches, trains, boats, vehicles and yachts are all machinery exempt from capital gains tax. Although they do all form part of a deceased owners estate, and must be accurately valued for purposes of probate.
We mentioned earlier that the purpose of ownership also has a bearing. This exception applies where wasting chattels, as defined above came into the owner’s possession for trading purposes.
In this instance, HMRC refuses the exemption because (a) trade and capital allowances have already been claimed OR (b) they could have been claimed but were not. This means one of the following two rulings apply:
- A tax on a chargeable gain from the transaction, or
- A balancing charge to offset a previous allowance.
Non-Wasting Chattels
HMRC defines non-wasting chattels as tangible movable property with an expected life of more than 50 years. These might include fine art, antiques and jewellery. Sections S262 of Taxation of Chargeable Gains Act 1992 exempts these from capital gains tax ONLY IF the amount or value of the consideration for the disposal does not exceed £6,000.
How Does Capital Gains Tax on Gifts Work?
Capital gains tax and chattels follow a few extra twists and turns in the case of gifts. The giver could acquire an obligation to pay capital gains tax for example, in which case the value of the gift comes in sharp focus. The rules for this depend on who the recipient of the chattel is. And the remit also includes selling something for less than its market value.
Precious Memories of the Past © Avery Associates
GIFTS TO SPOUSES / CIVIL PARTNERS
Gifts to spouses are capital-gains-tax-free, provided the parties live together during at least part of the year concerned, and these chattels are not trading stock. However, if the recipient subsequently sells, or otherwise disposes of the asset, then any gain calculates from the date the first partner owned it.
GIFTS TO ALL OTHER PEOPLE
The situation becomes far more complex at this point. Follow this link if that situation applies to you. The bottom line is if a chattel is given away free, or sold for a discount then capital gains tax is based on the fair market value of the asset. This can create quite a dilemma.
Speak to Avery Associates to Know the Truth
Much of this dilemma hinges on the fair market value of the gift, or the amount of discount allowed on the sale. Avery Associates includes a team of professional valuers of chattels and other personal possessions. We also facilitate sales where owners prefer to convert chattels to cash. Call 0800 567 7769 to explore your options now.
