Chattels and wasting assets: What are they and how are they treated?

Some assets are exempt from capital gains tax (CGT), and it is always worth being aware of these. The exemption for an only or main residence (immovable property) is probably the most well-known, but there are also exemptions for chattels and wasting assets (moveable property).

Chattels

A chattel is, broadly, tangible movable property: something physical that can be moved and is not land or an intangible right. Common examples include paintings, antiques, jewellery, furniture
and some collectables. The legislation gives such assets a special, limited exemption because many personal possessions are modest in value and it would be disproportionate to tax every small gain on disposal. This also means that relief is not given for losses on their disposal.

The chattel exemption

If the disposal consideration for a chattel does not exceed £6,000, any gain is exempt. The focus is on disposal proceeds, not on the amount of profit. So, if a painting bought for £2,000 is sold for £5,500, the whole gain escapes tax. If proceeds exceed £15,000, the ordinary capital gains rules apply, subject to any other relief or exemption that may apply. For disposals between £6,000 and £15,000, a marginal relief limits any gain to five-thirds of the proceeds above £6,000. This prevents a ‘cliff edge’ where a very small increase above £6,000 would otherwise expose the whole gain to tax. Sets of chattels (e.g., matching chairs, a chess set or a collection intended to be kept together) must be treated as one asset, not split into separate low- value sales. Similarly, qualifying items sold to the same or connected persons are treated as disposed of together rather than as individual items. Valuation is therefore important here in identifying whether items form a ‘set’.

Wasting assets

Wasting assets are those with a predictable useful life not exceeding 50 years, judged by reference to the purpose for which the person disposing of the asset acquired it, which may vary from case to case. Generally, any gain on the disposal of such assets is exempt from CGT, and is not allowable. HMRC examples include animals and some consumable or finite-life assets, and the exemption recognises the wasting nature of these.

Plant and machinery

Plant and machinery are always treated as having a predictable life of less than 50 years, regardless of how long they actually last. HMRC gives examples such as clocks, watches, shotguns, road vehicles, yachts and other machinery-type assets. Gains on the disposal of such assets will be exempt in full as a wasting asset, even if the item has appreciated significantly and may physically endure for much longer than 50 years. However, note that there are restrictions on this exemption for wasting assets. In particular, if the asset has been used in a trade, profession or
vocation and capital allowances were or could have been claimed on it, the wasting asset exemption is not available, and gains may be chargeable. This means that an asset cannot qualify for both capital allowances on business use and full CGT exemption on disposal. Therefore, business machinery and equipment require careful analysis. However, if a chattel is a wasting asset and the disposal proceeds are less than £6,000, the chattel exemption can still apply.

Conclusion

The CGT exemption for chattels and wasting assets removes many personal possessions from charge, but careful classification is important. As can be seen above, the rules overlap and should not be read in isolation. A further point is that while records of sale and purchase should be easily obtainable for land and real property, the original acquisition value or cost of chattels and wasting assets may easily be lost or not kept on the basis that they were not thought to be of future relevance. Keeping records of purchase prices, particularly for assets that may increase in value, is recommended.

Practical tip

Note that an asset that is attached to and has become part of a building or land will be treated as part of that land or building. If it has not become part of the building or land, it will continue to be treated as a separate asset.

Disclaimer: The information provided on AccountingFirms.co.uk is for general informational purposes only and should not be considered professional accounting, tax, or legal advice. Always consult a qualified accountant or tax adviser for advice tailored to your individual circumstances.