A chattel gets its name from an ancient legal term for a movable thing we can possess, that has a tangible form. It could, for example be as large as a motor car, or as small as a tiny ear ring. This post is an update on chattels and capital gains tax, because some water has flowed under the bridge since we last wrote.
Some legal documents may still call chattels, ‘choses in possession’, which means the owner physically owns them. This distinguishes chattels from ‘choses in action’ like shares or cash in the bank. The difference in the latter instance means we may need to take action to realise ownership.
Did You Skip Over the ‘Movable’?
Did you notice the word ‘movable’, in the first line of the body of this post? It’s a word that complicates the meaning of chattels under UK law. This is because ‘moveable’ defines the dividing line between fixed property and personal chattels. And yet, ironically there is no legal definition of the term.
A common approach to this dilemma in chattels and capital gains tax disputes, is to ponder over what the person intended who placed the item there. Did they, for example, intend that a fence on their farmland was permanent, or were they temporarily demarcating something?
Calculating Chattels and Capital Gains
Different rules may apply to chattels and fixed property depending on circumstances. The general rule for tax purposes is as follows:
- If an asset is not part of land or a building, then it is a separate chattel.
- If the asset has become part of land or a building, then it not separate.
If an asset is a chattel in terms of this definition, it may be a wasting, or a non-wasting one for capital gains tax. We explore the differences in these two types of personal assets in the next two paragraphs.
Exploring Wasting Chattels – What Are They?
The rules for chattels and capital gains tax in this section, apply to personal assets with a maximum useful life of 50 years. In this instance, the timer generally starts from the date of acquisition. Although the purpose of acquiring the wasting chattel may affect this.
If you are investigating the relationship between your chattels and capital gains tax, then you may be delighted to know the following. “A chattel which is wasting will be exempt from capital gains tax, and any losses on it will not be allowable.”
How Much Are These Items Worth ©Avery Associates
Let’s say, just for example, we purchase a case of famous red wine as an investment. It is nearing its peak, but we still manage to sell it for a decent profit. This sale will be exempt from capital gains tax, because only a few wines are still good after 50 years. This makes it a wasting chattel.
So much for natural, organic things, but what about machinery. If you collect grandfather clocks, you will probably be delighted to know that HMRC classifies these as machinery, along with cars and toy trains. And the tax office believes machinery does not last longer than 50 years.
However, there is one exception to this rule concerning wasting chattels and capital gains tax. If a wasting chattel has been used in business, and the owner could, or did claim capital tax allowances, then the situation is different. When that owner sells the machinery, they might be liable for both a balancing charge, and a tax on any capital gain they made.
Non-Wasting Chattels and Capital Gains Tax
A non-wasting chattel is a physical thing we own, that we can touch and see. However, there is one distinguishing feature that separates it from a wasting chattel. If HMRC believes it will last longer than 50 years, then capital gains tax may apply. Unfortunately for collectors, this rule applies to fine art, antiques, jewellery, and the like.
Capital Gains Tax Applies to Jewellery ©Avery Associates
HMRC Rules for Calculating Capital Gains Tax
If the above rule applies to you, and you sell one of those qualifying assets, then you need to calculate your net profit or capital gain. This is quite a complex formula. We recommend following that link after you finish reading this article, because there are a few more things you should know.
But first the good news on the subject of non-wasting chattels, and capital gains tax. If your net profit on the sale of a wasting chattel is less than £6,000, then that sale is exempt from capital gains tax.
The Importance Of Valuing Chattels Correctly
Its really important to value chattels correctly, whether you are managing a deceased estate, selling the items, or both, to value the assets correctly. For if you do not, then you risk the ire of the heirs, or worse still a gains tax inquiry.
Avery Associates has an impressive panel of expert valuers. Do follow that link to appreciate the quality. We welcome all inquires, and assure you of our very best service at all times.
More Information
Fixtures Chattels and Commercial Leases in UK
Responsibility for Property in a Deceased Estate
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