Selling or giving away personal belongings can sometimes have tax consequences. When disposing of personal belongings, you should be aware of Capital Gains Tax (CGT) which is a tax on the increase in value of a belonging.
When you dispose of one of your belongings CGT is calculated on the sale proceeds (if the item is sold) or the market value (if the item is given away) after deducting what it cost or the value when the item was first acquired, say for example the item was inherited.
All gains on the disposal of belongings fall to be taxed and we must first look at the two categories of belongings, tangible assets and intangible assets.
Intangible assets are, for example, shares, options, leases, copyrights, patents, goodwill. Examples of tangible assets are land, property and chattels.
The most common gain made by individuals is that on the sale of a property which is not the principal private residence of the individual. For example, an inherited property or a buy to let property.
There are slightly different rules for calculating the taxable gain when it comes to chattels.
Chattels are tangible moveable property i.e. they can be touched and moved. Land does not fall into this category as land is immovable, but examples of chattels would be jewellery, antiques, wine, works of art, yachts, caravans, vintage motor cycles and also the more mundane household appliances: washing machines, TV’s, fridge/freezer.
Wasting Assets – Life span of less than 50 years
Some chattels have a short predictable life span of 50 years or less. They are termed wasting assets. Typically these would be household appliances, caravans and yachts. Also specifically included in the category of items with a short lifespan are antique watches, clocks and vintage motor cycles (but interestingly, not cars) despite them having a predictable lifespan possibly greater than 50 years.
All of these items are exempt from CGT because HM Revenue and Customs (HMRC) expects any item with a short lifespan to devalue over its lifespan and if the CGT rules applied this would generate a
capital loss. Imagine the crisis faced by HMRC if every tax return had a deduction for the £450 capital loss on an old washing machine or freezer! So rather than face the prospect of these multiple capital loss claims from individuals, HMRC allow all gains on these wasting assets to be exempt from CGT but to counteract this, no losses on these items can be claimed.
Chattels which are not wasting assets
These items include jewellery, paintings, antiques, fine wines, items of crockery and china, plate and silverware. This category also includes vintage motorcars.
These items are also exempt from CGT provided the disposal proceeds or value does not exceed £6,000.
When an item is disposed of and the proceeds exceed £6,000 only 5/3rds of the gain over £6,000 is taxable.
A painting is bought for £2,500 and sold at a later date for £9,000 giving a gain in value of £6,500. But the gain to be taxed is calculated as £9,000 – £6,000 = £3,000 x 5/3 = £5,000, that’s £1,500 less than the actual gain!