Chattels and Capital Gains Tax

As the country seems to be staring into a recession as a result of the COVID-19 pandemic, some people are considering how to raise cash without increasing their level of personal debt.  The sale of heirlooms and objects gathering dust on shelves and in attics is one way. 

Capital gains tax (CGT) arises when there is a disposal of an asset resulting in a gain. For CGT a disposal includes a gift or sale. The capital gain (or capital loss) which arises in the case of a sale is basically the difference between the cost of the asset and the sale proceeds and, in the case of a gift, it is the difference between the cost of the asset and assumed sale proceeds equal to the asset’s market value. Thus, gifting can give rise to a CGT liability even though no proceeds are received. 


Chattels are defined as tangible moveable property; for example, jewellery; antiques; yachts; books; wine; clocks; etc. Tangible means something that is physical and can be touched and moveable means something that can be moved without damaging its surroundings.

For CGT purposes chattels are divided into those which are wasting chattels (WCs) and those which are non-wasting chattels (NWCs). 

Chattels: Wasting chattels 

WCs are those with a predictable life of 50 years or less. Examples include firearms, caravans and yachts. In addition, antique watches and clocks and vintage motor-cycles (despite a predictable life in excess of 50 years) are treated as WCs.  All animals such as racehorses and greyhounds are also WCs. 

WCs are exempt from CGT which also means that any losses are not allowable capital losses. Typically, the value of a WC decreases over time and thus on sale a capital loss inevitably arises; as HMRC do not wish an individual to have a proliferation of usable capital losses the quid pro quo is that any capital gain (which is most unlikely to arise) is exempt from CGT. 

Chattels: non-Wasting chattels 

NWCs are those chattels not falling to be treated as WCs. Examples include antiques; jewellery; fine wines; vintage cars; etc. 

These are subject to CGT depending on how much they are bought and sold for. NWCS that are bought and sold for £6,000 or less are exempt from CGT, but NWCs that are bought and sold for more than that figure are subject to the normal rules for CGT. 

The chattel rules, therefore, only apply to NWCs for which the proceeds are more than £6,000 and the cost is £6,000 or less, where a gain has been made.  Alternatively the rules may also apply if the consideration £6,000 or less and the cost is more than £6,000, where a loss has been made.  This is sometimes referred to as ‘marginal relief’. 

Calculating the Gain or Loss under the Chattel rules 

If a gain has been made, the gain chargeable is restricted under the rules to a maximum of 5/3rds of the proceeds minus £6,000. 

This restricted gain is the maximum chargeable gain, so if the normal gain is calculated as being lower, this can always be used instead of the restricted gain. Therefore, two calculations should always be made to ensure the lowest possible gain is being used. 

If a loss has been made, the chattel rules  restrict the loss available to be offset against other gains to the maximum of a loss, calculated by taking £6,000 as the maximum cost rather than the actual cost. 

The following examples will make this clear:

Example 1 

Suhail purchased the following assets: 

(1) an antique painting £3,500 (sold for £7,500). 

(2) a necklace £1,500 (sold for £5,000). 

A CGT liability arises on the sale of the painting on a capital gain of: 

[£7,500 – £6,000] x 5/3 = £2,500 (despite the actual capital gain of £4,000). 

There is no CGT liability on the sale of the necklace as sale proceeds do not exceed £6,000. 

Example 2 

Karen purchased an antique desk for £4,500 (sold for £9,800) 

Normal calculation of CGT liability 

(£9,800 – £4,500) = £5,300 

Restricted gain calculation of CGT liability 

(£9,800 – £6,000) x 5/3 = £6,333 

Here, Karen would use the normal calculation, as it results in a lower capital gain. 

Example 3 

Paul purchased a painting for £8,000 and sold it for £5,000. The actual capital loss of £3,000 is restricted to an allowable capital loss of [£6,000 – £8,000] = £2,000. 

Spousal transfers 

Every individual is entitled to an annual exempt amount (AEA) per tax year of capital gains which are CGT free. For the current tax year 2020/21 the AEA is £12,300 (ie the first £12,300 of capital gains are CGT free; only the excess over £12,300 is subject to CGT). 

If therefore a wife owns a piece of jewellery (original cost £6,250) and an antique painting (original cost £7,200) which, on sale, are likely to give rise to capital gains of £8,000 and £9,000 respectively it may be a good idea for the wife to transfer ownership of one of the items to the husband (to whom it then belongs) to sell. This will then enable each spouse to utilise their AEA such that no CGT liability arises on the sale of each of the items (transfers inter-spouse do not precipitate CGT liabilities). 

Practical tips 

Where a married couple are considering purchasing a NWC it may be sensible to purchase it jointly so that on sale, where the consideration is likely to be £12,000 or less, no CGT charge arises as the sale proceeds for each spouse are not more than £6,000. 

If HMRC determine that you trade in chattels, buying and selling them to make a profit, then you are liable to income tax on your profits. Income tax rates are 20%, 40% and 45% compared to the lower 10% and 20% CGT rates. However, even if HMRC consider that the activities in question are a trade, you can make up to £1,000 per year from this tax-free, utilising the trading allowance. 

SRC-Time are one of the South East’s leading accountancy firms in advising individuals and businesses in all aspects of their accounting and tax affairs and we are able to assist in any issue raised above. 

Our expert team is available to provide you with advice and can be contacted on 01273 326 556 or you can drop us an email at  or speak with an account manager to get any process started. 

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