This brief introduction to chattels and capital gains tax is just that. You’ll find a more complete guide to capital gains tax implications by following the link. If you intend acting on what follows, you should speak to your tax adviser first, before reaching any decisions.
What Is a Chattel and What Is Not
Chattels are not land, property, or anything physically attached thereto. They are tangible, movable possessions we can touch and physically move around. This definition includes, but is not limited to the following personal items:
- Pieces of household furniture and other loose gear.
- Paintings, antiques, crockery, china plate, and silverware.
- Motor cars, lorries, motorcycles, boats, and aircraft.
- Machinery and plant not permanently fixed to a building.
These items are generally subject to capital gains tax. However, there are chattels that are not subject to capital gains tax. These include private cars, and personal possessions with only a limited lifespan.
The Bar for Declaring Capital Gains Tax on Chattels
The following sales of personal possessions need not normally be reported on your tax return:
- Chattels where the disposal proceeds were less than £6,000.
- Private cars, and personal possessions with limited lifespans.
However, it is important to note that where chattels were donated or notably discounted, then the market value shall apply. See these Capital Gains Tax summary notes for further information.
What Is This Old Car Worth © Avery Associates
Four Rules for Chattels and Capital Gains Tax
There are four important rules for assessing whether you made a gain or a loss when disposing of chattels.
Rules for Disposal of Single Chattels
IF YOU MADE A PROFIT FROM THE TRANSACTION
If the proceeds were more than £15,000, then follow the process described in the capital gains summary notes.
If the proceeds were less than £15,000, then follow these steps to determine whether you need to include the transaction in your return.
- Establish by how much the proceeds exceed the £6,000 bar.
- Multiply the result of the first calculation by a factor of 5 ÷ 3.
- The second result represents the maximum chargeable gain.
- Now work out the net gain by following these summary notes.
- Enter the lesser of the maximum and net gain on your return.
IF YOU MADE A LOSS FROM THE TRANSACTION
- You cannot claim a loss involving a private car, or in most cases a wasting asset.
- If the proceeds were less than £6,000, then assume they were that amount.
- However, if the proceeds were that amount or more, apply the actual amount.
Rules for Disposal of Sets of Chattels
The above rules may not apply if you dispose of a ‘set of chattels’. A set is a number of chattels that are (a) similar and complimentary to each other, and / or (b) worth more together than separately.
What Are These Worth Collectively © Avery Associates
Examples of chattel sets (this is not a complete list) include matching ornaments (vases, statuettes, etc.), books on the same topic / by the same author, a set of chessmen etc.
WHAT HAPPENS IF YOU DISPOSE OF A SET?
- If you dispose of a complete set, apply the £6,000 rule as described above.
- If you broke up a set and sold them separately, the rule still applies if …
- You owned them at the same time, and / or
- You sold them to the same person, or
- To the same group of people acting together, or
- You sold them to a group of people who were connected.
CHATTELS AND CAPITAL GAINS TAX ON WASTING ASSETS
You may recall that wasting assets are those with a short, non enduring life. In terms of chattels and capital gains tax, this predictable life is 50 years or less. We come to this conclusion by considering the nature of the asset, and our intended use of it when we originally acquired it.
This definition of wasting chattel becomes quite complex when we delve into it. We pause for a moment to consider the factors in a little more detail.
If we buy a racehorse, or a case of fine wine, we can safely assume it is a wasting chattel that should not see a half-century out. HMRC assumes this principle applies equally to clocks and watches, trains, boats and yachts, because it regards these as personal machinery.
Is This Boat a Machine © Avery Associates
WASTED ASSETS USED IN TRADE AND BUSINESS
HMRC excludes these items, because trade and capital allowances have already been granted, or could have been applied for. There are therefore two potential tax liabilities applying to them upon sale:
- A balancing charge to offset a previous allowance.
- A tax on a chargeable gain from the transaction.
A taxable loss must similarly off-set any previous capital allowance relief granted.
And Finally, Non-Wasting Assets
A discussion on chattels and capital gains tax would be incomplete without considering personal chattels likely to last for longer than 50 years. Examples such as Avery Associates regularly value, include fine art, antiques, and jewellery.
The £6,000 rule mentioned earlier applies to these too. The Association of Chartered Certified Accountants (ACCA) suggests the same principle applies to sets, although you may like to take expert opinion on this.
Having Difficulty Valuing Your Chattels?
Avery Associates provides a chattel valuation service in Greater London, and throughout the South of England. We invite you to visit our website and acquaint yourself with our offerings. Please call 0800 567 7769 when you are ready to chat.
