While income tax applies to most sources of income, capital gains tax (CGT) applies to profits on the sale or disposal of an asset that has increased in value since its acquisition.
However, some assets are exempt (e.g., a person’s only or main residence) while others (e.g., business assets) enjoy specific reliefs. Chattels and wasting assets are also subject to exemptions and reliefs.
What are Chattels?
Chattels are items of tangible, movable property such as furniture, antiques, jewellery, and artworks, but not ‘currency of any description’. If a chattel is sold for £6,000 or less, it is entirely exempt from CGT, so the sale or disposal of most everyday personal belongings is not taxable. For example, if Mr Smith sells an antique painting (bought for £3,500) for £5,000, no CGT liability would arise.
On the other hand, a marginal relief applies to sales for more than £6,000. The relief ensures that the taxable gain does not exceed five-thirds of the amount by which the sale price exceeds £6,000.
So, if Mr Smith sold his painting for £7,500, the gain is £4,000 but marginal relief is due. The excess over £6,000 is £1,500. The chargeable gain is therefore the lesser of £2,500 (i.e., £1,500 x 5/3) and the gain before relief of £4,000. The taxable gain here is thus £2,500.
Finally, note that if chattels form a set (e.g., a set of six dining chairs), the above rules apply as though they were one asset. It is therefore not possible to artificially divide valuable sets into individual lots and claim the £6,000 exemption multiple times.
Wasting Assets
Wasting assets are chattels with a predictable useful life of 50 years or less. These include items such as machinery, vehicles, and some equipment. Subject to conditions, such assets are exempt from CGT on the basis that their value tends to reduce over time, making gains less likely. The CGT exemption applies regardless of their sale value, subject to two main conditions. First, that the asset must have been used as personal property rather than for business purposes; and second, that its predictable useful life must be 50 years or less.
Examples of exempt wasting assets are cars, clocks, shotguns and animals. However, if a wasting asset has been used for business purposes, the exemption will not apply if capital allowances (i.e., a depreciation allowance based on the asset’s value, which reduces taxable business profits) were or could have been claimed. In such cases, the asset’s disposal would typically be subject to different tax rules and allowances.
Other Points
Some property (e.g., a racehorse or a yacht) might fall within the definition of both a chattel and a wasting asset and might be exempt from CGT under either criterion.
Those with valuable assets that may be sold or disposed of in future should ensure that they obtain an accurate valuation to determine whether any gain would be eligible for exemption or marginal relief. Proof that the asset had been used for personal rather than business purposes may also be required to substantiate a claim for exemption, and professional advice may be required by taxpayers with high-value collections or unique items.
Conclusion
For most people, the CGT exemptions for chattels and wasting assets will mean that the sale or disposal of personal assets below £6,000 (this limit having remained unchanged for many years) exempts most items, while more pricey assets will incur a charge.
For those lucky enough to own valuable items, an understanding of the rules will be essential to avoid unexpected liabilities.
Practical Tip
HMRC’s Capital Gains Manual has examples of the department’s view of assets that would qualify for the above exemptions and reliefs. It also includes its view that while wines and spirits will be assets, and most will be drunk within 50 years of acquisition, fine wines, port and fortified wines will not qualify as wasting assets.