Chattels and Capital Gains Tax: A Guide in 2022

A capital gain arises if you buy something for more than its original cost or other basis. You are allowed to deduct the amount spent on buying it. For example, if you bought a car for £10,000 and sold it for £12,500, you could claim £2,500 as a deduction against your income tax bill. This is known as a capital loss.

If you buy something for less that its cost or other basis, you do not pay any tax. However, you cannot deduct the amount spent on purchasing it. In our example above, you did not make any profit because you paid £10,000 for the car. So you owe no tax.

You must report any capital gains you make each financial year on your tax return.

The rules about capital gains depend on whether you live in England, Wales or Scotland. They differ slightly depending where you live.

For further information about capital gains, see HMRC’s guidance on capital gains.

Introduction

The term “chattel” refers to movable property such as furniture, vehicles, boats, etc.

In the UK, there is no general definition of what constitutes a chattel; however, it includes items such as paintings, antiques, chandeliers and crockery.

Private cars are exempt from Capital Gains Tax (CCT). This exemption applies to the sale of a car where the seller owns both the land and building in which the car is located. However, if the owner sells his house separately from the car, he must pay CCT on the value of the car.

Items of plant and machinery not attached to buildings are exempt from Capital Gases Tax (CGT). For example, a machine used to make shoes could be considered a piece of equipment rather than a building.

Have you made a gain

You must complete Form CM2401 – Capital Gains Tax Summary Notes to record capital gains and losses arising from disposals of chattels. If you dispose of a chattel for less than £6,000, you do not need to complete Form CM2401. However, if you dispose of a chattle for more than £6,001, you must complete the form.

The capital gains tax rules are complicated, especially because there are different rules depending on whether you sell the chattel yourself or give it away or sell it to someone else. In some cases, you can choose to use either the market value or the price you paid for the chattel. This article looks at when you need to use the price you paid and when you need to use market value.

Market value vs. price you paid

In most cases, you can use the market value of a chattel rather than the price you paid. Market value is usually lower than the price you paid because the market value includes the costs involved in selling the property.

For example, you bought a car for £10,000. The market value of the car is likely to be around £5,000. So, even though you paid £10,000, you actually make a loss of £5,000 because the cost of sale is included in the market value.

Disposals of single chattels

If you dispose of a single chattel without calculating the gain, you must use the following formula:

Gain Proceeds × 5/3

Example: A person sells his car for £7,500. He receives £5,000 cash and £2,500 freehold title deeds. His gain is £4,500.

The gain depends on the amount of the proceeds. If the proceeds are over £6,000 but under £15,000, you must calculate the gain.

You can use the following formula: Gain Proceeds × 5 / 3

Example: A person buys a second hand car for £10,000. He pays £1,000 deposit and £8,000 balance. His gain is £9,000.

The gain depends upon the amount of the proceeds, and whether it exceeds or falls short of £6,000. If the proceeds are above £6,000, you must multiply the proceeds by 5 ÷ 3 to find the maximum gain.

Example 1

A man buys a car for £10,000 and sells it for £15,000. He therefore earns a profit of £5,000. Does he owe Income Tax on this amount?

Income Tax applies to profits derived from dealing in goods or providing services. In this case, the man deals in goods because he bought the car for £10,0000 and sold it for £15,00. However, he provides no services in relation to the transaction. Therefore, he does not provide services and he cannot claim that he is engaged in a trade or profession. He is therefore liable to Income Tax on the £5,000 profit.

However, there is another way in which he could avoid paying Income Tax on this money. He might say that he paid £10,000 for the car and received £15,000 for selling it. In this case, he would not earn a profit and he would not be liable to Income Tax.

The same rule applies to people who buy goods for their own use. They do not deal in goods and they are not dealers. However, if they sell the goods for a profit, they must pay Income Tax on the profit.

If you want to know whether you are liable to Income Tax, you must check whether you are a dealer or not. You are a dealer if you make a profit from dealing in goods or offering services.

For further information about Income Tax see chapter 4 of HMRC Publication 595, Income Tax Manual.

What occurs if a loss is sustained?

If you make a loss on a property sale, it could affect how much tax you pay. You can claim a loss up to £6000 if the sale price is lower than £6000. This includes properties bought and sold within 12 months. However, if the sale price is above £6000, you can still claim a loss even if you don’t sell the property again.

The loss can be claimed if you dispose of the property via a deal such as an auction, a mortgage arrangement or a leaseback agreement. In some cases, you might be able to reclaim the full amount of the loss, depending on the circumstances. For example, if you sell the house for £5000 and buy another one for £1000, you can claim a £500 loss against the profit you made.

You can carry forward losses incurred in previous years, meaning you can use the same loss twice. So if you lose £3000 on a property sale in 2017, you can carry forward the loss into 2018 and 2019. But you must keep track of what happened to the money you used to make the loss. Otherwise, you won’t be able to claim it again next year.

You’ll need to prove that the property was purchased for less than £6000. To do this, you’ll need to provide evidence including receipts, bank statements and invoices. You can submit these documents to HM Revenue & Customs (HMRC). They’ll check whether there’s enough proof to support your claim.

Sets of chattels

A set of chattels are items that you buy together. For example, a car and a house are both chattels because they are purchased together. If you purchase a car and a house separately, they are considered separate sets of chattels.

A set of chattle cannot be split up into smaller lots. You cannot sell one part of a set of chattels and keep the rest. This applies even if you pay less than the full price for a lot of chattels. However, there is an exception for chattels under six thousand pounds. In this case, you can break up the set of chattels into smaller lots.

What is a set

A set is a collection of items that are similar and complementary. For example, you might have a set of books about dogs, a set of books about cats, a set of books for kids, etc. You could even have a set of books that are related to each other. In fact, there are many different types of sets. Here are some examples:

• Books about dogs

• Books about cats

• Books for kids

• Books about health

• Books about sports

• Books about cooking

What occurs when a set is discarded?

Disposal of a set means breaking it up into individual items. For example, if you buy a set of knives, you could break them up into pieces and sell each piece individually. You might even give some away as gifts. If you bought a set of four chairs, you could take one home and put the others out for sale. Or maybe you’d like to donate the whole thing to charity.

There are special rules that apply when the parts of the set you’re disposing of are owned buyout the sometime disposed of by you to the same developer, or a number of developers acting together, or a number of developers who are connected. In those cases, you must follow certain rules about how to dispose of the property.

For instance, if you sold a house to several buyers, you would probably want to keep track of what happened to each buyer’s interest in the house. So you would know whether the buyers had already paid off the mortgage, or if they still owed money on the loan. This way, you wouldn’t end up giving someone a partial refund because he didn’t pay his part of the mortgage.

If you donated a car to a nonprofit organization, you would need to make sure that the nonprofit got the car. Otherwise, you might accidentally give away the car twice.

In addition, there are laws governing what you can do with property that you own. These laws include things such as zoning regulations, environmental regulations, and building codes. If you don’t comply with the law, you could face fines or legal action.

Example 2

Ruby used up her savings account to buy a brooch worth £3K. She sells it for £10K. Her profit is £7K.

The maximum chargeable gain is 10% x £3K £30K.

This example illustrates how to calculate the maximum chargeable gain.

Wasting assets

When you dispose of an asset which has a predictable life of under 50 years, you must calculate how much tax you owe on any gains or losses. If the asset is one of those listed above, you may claim capital allowances against the value of the asset. You can do this even though you did not make any deductions during the period when you owned the asset. However, you cannot claim capital allowances for a chattel which has a predictable life over 50 years.

Business assets

Capital allowances are one of those things that sound like something out of Harry Potter. But it turns out that there’s actually a lot of money to be had from selling off certain types of property. And if you want to take advantage of this, you need to know what qualifies as a “business asset.”

You might think that anything you use to run a business counts as a business asset. After all, isn’t that why you set up a corporation in the first place? Well, yes, but there are some exceptions. For example, if you sell your home to buy another house, you won’t be able to claim the sale against capital gains taxes. If you rent out your apartment while you live in it, you’ll lose the ability to deduct mortgage interest payments.

If you work for yourself, you’re probably thinking about how much you could save by moving into a smaller office space. You might even consider buying a second car to cut down on gas costs. But you’d better check with your accountant first. There are rules governing where you can write off expenses related to running a business.

Frequently Asked Questions

Why is the squandering of assets significant for Capital Gains Tax?

As long as the asset is not being utilized for business purposes, it is exempt from capital gains tax. This includes furniture, trucks, and other equipment. The assets that are not employed for company purposes include old clothing, books, and toys.

If, as a private individual, you lend an asset to a business and the business subsequently utilizes it as plant or equipment, you must still report any gain from its sale on your personal income tax return. However, no further statement is required if the item is resold within 12 months and the revenues are invested in another asset utilized for business purposes.

What if numerous individuals own the asset?

If you own something like a house, car, artwork, or even a piece of land, there might be times when you want to sell it. But what happens if you don’t know how much each owner gets? Or worse still, what happens if you’ve sold the item and now realise you don’t know how many owners there are?

This could happen if you inherit property, have bought it yourself, or acquired it via a gift. In some cases, the seller won’t tell you exactly how much each owner receives. You’ll find out later, once you’ve received your money, and realised just how much you got.

The situation can become even trickier if several different parties claim ownership of the same asset. This could occur if you inherited a house, or if you bought it together with another person. If you decide to sell the item, you’ll need to work out how much each owner gets, and ensure you stick within the limits set by HMRC.