In continuing with the previously visited subject of Capital Gains Tax (CGT), I thought I would explain the more specific rules for “chattels”. A chattel is the legal term for a tangible, or physically touchable, moveable asset. which can cover most items with the main exceptions of buildings and shares. The term is most often used to cover household belongings or everyday items.
Rules for Capital Gains Tax regarding chattels
When the proceeds from selling a chattel exceeds £6,000 it becomes liable for CGT. If the proceeds are more than £6,000 but not more than £15,000 the taxable gain is usually capped. To calculate the gain, you would subtract £6,000 from the proceeds and multiply the amount by five, then divide by three.
For example if you sold a painting at an auction for £7,500 and had originally bought the painting for £2,000, you would calculate the capped gain like this. There is also £500 of auction fees.
£7,500 take away £6,000 gives £1,500. Multiply £1,500 by five gives £7,500 then divide by three to get £2,500, making the maximum taxable gain £2,500.
The actual gain is calculated as the profit on sale, in this case is £7,500 takeaway £2,000 for the original cost and another £500 for the auction fees to give a gain of £4,500. As £4,500 is higher than £2,500, the taxable gain is reduced to £2,500.
If the proceeds are greater than £15,000 then there is no cap on the gain and a simple proceeds minus original cost and expenses for selling will give you the taxable gain.
In a similar fashion, if you make a loss and the proceeds were less than £6,000, (making the original cost greater than £6,000) your loss is restricted by treating the proceeds as £6,000. If the proceeds are greater than £6,000 when you make a loss, there is no restriction. If both proceeds and original cost are less than £6,000 then there is no loss or gain made from the disposal.
Sets of chattels
It is possible to have a set of chattels, which slightly changes the rules. A set of chattels are when you have multiple chattels which are similar and complimentary to each other or worth more together than if they were separate. Examples could be a series of books by the same author or a furniture set.
If you dispose of the set, the above rules regarding how you treat gains by the proceed amounts apply to the whole set and not each individual chattel as usual. As if the set were one chattel.
If you dispose of the chattels separately they still have to be treated as one chattel if the parts of the set were owned by you at the same time or sold to the same person or people within the same group.
A wasting asset is an asset with a predicted life span of 50 years or less. examples of wasting assets are cars, boats and livestock. All machinery are normally classed as wasting assets, from a clock to motor vehicles. Normally a wasting asset is exempt from tax, unless you use the asset in a business and you could have claimed capital allowances on it. You estimate the predictable life of a asset from when you originally acquired it, taking into account what the intended use for the asset was.
If you have any questions on chattels, or would like help with capital gains tax in general, please do not hesitate to contact us.