Chattels exemption

Chattels include items like household furniture, paintings, antiques, items of crockery and china, plate and silverware, motor cars, lorries, motorcycles and items of plant and machinery not permanently fixed to a building.

Gains on chattels are exempt if proceeds do not exceed £6,000 per item and marginal relief may be available where the proceeds are between £6,000 and £15,000.

Marginal relief

There is a special formula for calculating a capital gain when a chattel is sold for between £6,000 and £15,000. The taxable gain is calculated as the lower of the actual gain or five-thirds of the excess over £6,000.

CGT exemption

UK residents are allowed to make a certain amount of tax free capital gains each year, known as the annual exempt amount. For 2020-21, this amounts to £12,300.

CGT can be charged at various rates:

• Taxpayers that pay basic rate tax and make a small capital gain may only be subject to CGT at the rate of 10 per cent.
• If the total of taxable income and gains exceeds the higher rate threshold, the excess will be subject to 20 per cent CGT.
• These rates are increased to 18 per cent and 28 per cent if the gain refers to the disposal of a chargeable residential property.

Sets of chattels

There are special rules for sets of chattels. A set is two or more chattels together which are similar and complementary to each other, and worth more together than separately. Examples include a pair of candlesticks or a chess set. When a set is sold the £6,000 limit applies to the set and there are special rules to sets which have been sold in separate parts.

Payment of tax

CGT on the disposal of most chargeable assets is due for payment on 31 January following the end of the tax year in which the disposal occurs. For example, for the tax year ending 5 April 2020, any CGT due must be paid by 31 January 2021 in order to avoid penalties and interest.

However, since 6 April 2020, gains on the sale of residential property subject to CGT (for example, a second home or holiday home) have to be reported to HMRC within 30 days of disposal. Payment of any CGT due also has to be paid in this 30-day window.

Losses

Sometimes the sale of a chattel may be for less than its cost. In such circumstances a capital loss is made. Taxpayers can usually deduct capital losses from capital gains made in the same or future years. As a general rule, if the asset would have been liable to CGT had a gain taken place then the loss should be an allowable deduction. A loss cannot be claimed on the disposal of a private car or on wasting assets (e.g. wine).

If the disposal proceeds are less than £6,000 then the loss is restricted as £6,000. If the proceeds are £6,000 or more the amount of the loss that can be claimed is unrestricted.

Valuations

It is often necessary to include valuations in the calculations of capital gains. For example, if the asset was originally inherited, has been given away, was received as a gift or was acquired before 31 March 1982.

In such cases, it is important to disclose the name and qualifications of the valuer. Although not a legal requirement this disclosure should protect taxpayers from a late discovery by HMRC. This in turn should remove the possibility that HMRC can demand additional amounts of CGT, interest and penalties long after the normal payment date.

Notifying HMRC of a liability to CGT

Taxpayers that are required to complete a self-assessment tax return must notify HMRC of any taxable gains on the capital gains pages of the return. As with income tax, taxpayers are required to calculate their liability to CGT even though this requires an understanding of the rules, the exemptions and the available reliefs.

If taxpayers do not automatically receive a tax return each year they must still notify HMRC that they have a CGT liability. Tax geared penalties and interest are charged when CGT is paid late.

The law requires taxpayers to notify HMRC by 5 October following the end of the relevant tax year. HMRC will then issue a tax return and this must be completed within three months and any tax paid by the same deadline.

Taxpayers are only required to report capital gains as and when they have a liability to pay CGT. In most cases therefore no return is required where total gains in a tax year are less than the annual tax-free allowance or when chattels are sold for less than £6,000. Of course, someone still needs to prepare the calculations to establish whether there is a liability to CGT.

Please note the requirement, already outlined above, requires that chargeable disposals of residential property (since 6 April 2020), need to be sent to HMRC within 30 days of their disposal. This requirement should not apply if the property sold is covered by Private Residence Relief. i.e. it has been used exclusively as your home.

 Laurence Vogel, head of UK operations at Informanagement UK Limited