Chattels
The term ‘chattel’ refers to an item of tangible moveable property, which includes:
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Items of household furniture
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Paintings, antiques, items of crockery and china, plate and silverware
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Lorries and motorcycles
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Items of plant and machinery not permanently fixed to a building.
It does not apply to:
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Money
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Property used solely or mainly for business purposes, where capital allowances have been, or could have been, claimed, allowing businesses to claim capital allowances on these assets
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Property held solely as an investment.
What are Chattels?
Chattels are tangible, movable property that can be sold or given away. They encompass a wide range of personal possessions, including furniture, jewellery, artwork, and other luxury items. When these items are sold, they can be subject to Capital Gains Tax (CGT). Understanding what constitutes a chattel is needed for accurate tax reporting and compliance. For instance, chattel furniture and fixtures in your home, or valuable collectibles like paintings and antiques, all fall under this category. Knowing the specifics of chattels and their tax implications can help you manage potential tax liabilities arising from their sale.
Capital Gains Tax (CGT) Exemptions
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Wasting assets (chattels with a predictable life of 50 years or less) are exempt from capital gains, unless used in a business
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Private motor cars
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Coins which are sterling currency
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Deposits or withdrawals from foreign currency bank accounts
Disposal of single wasting chattels
There is no taxable gain if the proceeds do not exceed £6,000 (joint owners each have a £6,000 limit). When calculating gains, it is important to consider the total value of the chattel rather than individual items. Where the proceeds exceed £6,000 but are not more than £15,000, use the steps shown below:
EXAMPLE
Antique table – gross proceeds of sale £9,250 Original cost £2,000 Incidental costs of sale £350 Total costs £2,350 Actual gain £6,900
Now calculate the maximum chargeable gain
Excess proceeds over £6,000 (£9,250 – £6,000) £3,250 Multiply this by 5/3 £5,417
This is the maximum chargeable gain. Compare this with the actual gain, and use the lower figure, which is £5,417.
In cases where the sale of business plant and machinery results in a gain, a tax allowable loss arising from the sale may be adjusted based on capital allowances that have been claimed or could have been claimed.
If the proceeds are more than £15,000 calculate the chargeable gain in the normal way.
Gifts of Chattels
In accordance with normal principles, a gift is treated as a disposal at open market value at the date of the gift, potentially resulting in a capital gain, and so it will be advisable to obtain relevant valuations.
Sets of Chattels
A set is a number of chattels that are:
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Similar and complementary to each other, and
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Worth more together than separately
Understanding the relationship between chattels and capital gains is important when disposing of sets of chattels.
Disposal of assets in a set are treated as separate disposals unless they are sold to the same person or persons who are connected. In such a case the £6,000 limit applies to all of the set collectively and not to each item individually.
Calculating Capital Gains
Calculating capital gains on chattels involves a few key steps. First, determine the disposal proceeds, which is the amount you received from selling the chattel. Next, identify the original cost of the asset, including any incidental costs of sale, such as auction expenses. If the disposal proceeds exceed £6,000, the maximum chargeable gain is calculated by multiplying the excess by 5/3. The net gain is then found by subtracting any allowable loss from the chargeable gain. Keeping accurate records of the disposal proceeds, original cost, and any incurred auction expenses is essential for precise calculations and to ensure compliance with tax regulations.
Annual Exemption
Even if the disposal proceeds of chattels exceeds the £6,000 exemption level, there may not be any tax to pay because the gain, together with all other gains, may be covered wholly or partially by the CGT annual exemption (£12,000 for 2019-20).
The Taxation of Chargeable Gains Act 1992 outlines specific provisions for exemptions, such as the annual exemption.
Income Tax
In the normal way, investment in chattels is not usually subject to income tax. However, a sequence of gains on disposal may lead to the conclusion that they are being held for trading purposes rather than investment.
There are potential tax liabilities arising from the frequent trading of chattels, which may be subject to income tax.
Value Added Tax
Collectors’ coins may be liable to VAT at the standard rate. However, coins classified as ‘investment gold’ are exempt from VAT and do not qualify for inclusion in the VAT second-hand schemes.
Paying Capital Gains Tax
Paying Capital Gains Tax on chattels depends on the type of chattel and the disposal proceeds. Non-wasting chattels, such as antiques and jewellery, are exempt from CGT if the disposal proceeds do not exceed £6,000. However, if the proceeds exceed this amount, the capital gain is restricted to 5/3 of the excess. On the other hand, wasting chattels, which are items with a predictable life of 50 years or less, like plant and machinery, are generally exempt from CGT unless they are used in a business or trade. Understanding these distinctions is the best way to minimize tax liabilities and ensure you only pay capital gains tax when necessary.
Transferring Chattels to Minimize Tax
Transferring chattels can be an effective strategy to minimize tax liabilities. For married couples, transferring ownership of chattels to each other can help utilize their individual annual exempt amounts (AEAs), potentially resulting in no CGT liability. Additionally, purchasing chattels jointly can be beneficial, as the sale proceeds for each spouse will not exceed £6,000, thus avoiding a CGT charge. It’s advisable to seek professional advice to navigate these strategies effectively and ensure accurate tax planning. Properly managing the transfer of chattels can lead to significant tax savings and compliance with tax laws.
Seeking Professional Help
Navigating the complexities of Capital Gains Tax on chattels can be challenging, making professional help invaluable. Tax professionals or accountants can provide expert guidance on calculating capital gains, claiming allowable losses, and minimizing tax liabilities. They can also assist with tax planning and ensure compliance with HMRC regulations. Inaccurate calculations or reporting can result in significant penalties, so seeking professional help is essential to ensure accurate and compliant tax reporting. Don’t hesitate to consult with a tax expert to manage your chattels and capital gains effectively.
