Week 8

Cards (44)

  • Special CGT rules apply to disposals of chattels and disposals of wasting assets​
  • Chattel – an item of tangible, moveable property​
  • Wasting asset – Is an asset with a predictable useful life of less than 50 years.​
  • Wasting chattel – Is both a chattel and a wasting asset with a predictable useful life of less than 50 years – generally exempt from CGT​
  • The word ‘chattel’ is a legal term meaning an item of tangible, movable property – something you can both touch and move. ​
  • Your personal possessions will normally be chattels. Including:​
    items of household furniture if life longer than 50 years​
    paintings, antiques, items of crockery and china, plate and silverware​
  • The disposal of a chattel is exempt from CGT if gross disposal proceeds are £6,000 or less​
    This means that gains are not charged to tax but also losses are not generally allowable losses​
  • You only need to include in your tax return any gain on the disposal of a chattel where the disposal proceeds were more than £6,000 and the chattel is not exempt from Capital Gains Tax. The disposal proceeds will normally be the amount of money you received when you disposed of the chattel. ​
  • You do not need to calculate any gain on the disposal of any single chattel if the disposal proceeds did not exceed £6,000. If the proceeds exceeded £6,000 but were not more than £15,000, the amount of the gain to return depends on the amount of the:​
    1. Disposal proceeds​
    2. Actual gain​
  • Marginal relief - If the gross disposal proceeds of a chattel exceed £6,000, the chargeable gain cannot exceed​
     5/3  x  (gross proceeds – £6,000).​
  • Disposals of single chattels​
    Step 1 Work out the amount by which the disposal exceeds £6,000
    Step 2 Multiply the figure at step 1 by 5÷3.​
    Step 3 The result is the maximum chargeable gain.​
    Step 4 Work out the net gain (subtract all allowable expenses and cost)​
    Step 5 take the lower of the net gain (step 4) and the maximum chargeable gain (step 3).​
  • Sets of chattels​
    What is a set ?​
    A set is a number of chattels that are:​
    • Similar and complementary to each other​
    • Worth more together than separately​
  • Examples of sets may include:​
    • Chess pieces​
    • Books by the same author, or on the same subject​
    • Matching ornaments such as vases or statuettes​
    • Matching Jewellery sets etc​
  • Disposal of part of a set of chattels​
    If a taxpayer acquires a set of chattels and disposes of them individually, each disposal is treated as a part disposal and will be chargeable to CGT only if the disposal proceeds of an individual item exceed £6000​
    However:​
      A series of disposals of chattels which form part of a set to the same person or to persons connected with each other or acting together are treated as a single transaction for capital gains tax purposes​
  • Chattels disposed of at a loss​
    IF Proceeds are more than £6,000 – calculate the allowable loss in the usual way​
    IF Proceeds are £6,000 or less – chattels exemption applies​
    UNLESS​
    The chattel was acquired for more than £6,000, and sold for less than £6,000 ​
    then the chattels exemption is overruled and an allowable loss is given​
    The loss is RESTRICTED to the amount that would arise if the disposal proceeds were exactly £6,000.​
  • Wasting chattels: Chattels with a predictable life of 50 years or less are generally exempt from CGT​
  • Wasting Chattels
    Examples:​
    • Racehorses​
    • Fine wine​
    • Household items (kitchen appliances, computers, etc)​
    • Motor cars, lorries, motorcycles etc​
  •  gains arising on disposals of wasting chattels are not charged to tax and losses on such disposals are not allowable losses​
  • Plant and machinery is always treated as having a predictable life of less than 50 years and so will always be a wasting chattel.  As a result, even machinery which is prone to increase in value will be exempt from capital gains tax. ​
    But this exemption does not apply to movable plant and machinery which is used in business and eligible for capital allowances​
  • A wasting asset which is not a chattel is not exempt from CGT​
    Examples:​
    • Intangible assets: copyrights, patents and option with lives nor exceeding 50 years​
    • Short leases​
    • Fixed plant and machinery​
  • The cost of a wasting asset is deemed to waste away on a straight-line basis over the asset’s predictable life​
    The allowable expenditure on the disposal of a wasting asset is the unexpired portion of the asset's cost as at the date of disposal​
  • Domestic Washing machine?
    Wasting Chattel
  • Gold Ring?
    Chattel
  •  Personal computer?
    Wasting Chattel
  • 20 year lease on a building?
    Wasting Asset
  •  Antique Vase?
    Chattel
  •  Vintage Car?
    Wasting Chattel
  • Shares of the same class in the same company cannot be individually distinguished​
    Therefore, if a holding has been built up over a period of time, it is difficult to identify which shares are sold when a sale is made​
    To resolve this problem, the Taxation of Chargeable Gains Act (TCGA) 1992 specifies a set of share matching rules​
  • For CGT purposes, disposals of shares or securities are matched against acquisitions of the same class of shares in the same company in the following order:​
    1. shares acquired on the same day as the disposal​
    2. shares acquired in the following 30 days (earliest first)​
    3. shares in the Section 104 holding (s104)​
  • The s104 holding is a record of the total number of shares in the pool and the allowable expenditure in relation to those shares​
  • Shares acquired before 31 March 1982 join the S104 holding at their market value on 31 March 1982 (not at their original cost)​
  • s104 holding:​
    A record of:​
    The number of shares​
    • The allowable expenditure ​
  • A bonus issue is an issue of free extra shares to existing shareholders​
    For CGT purposes, a bonus issue is treated as a reorganisation of share capital, rather than an issue of new shares ​
  • When a taxpayer receives bonus shares, these shares are simply added into the number of shares in the s104 holding​
    The allowable expenditure in the s104 holding is not affected by a bonus issue​
  • A rights issue is an issue of shares to existing shareholders on favourable terms​
  • Shareholders who are offered rights shares may:​
    • ignore the rights issue (no CGT implications)​
    • sell their "rights"​
    • buy the shares​
  • If the shares are bought, the number of shares in the s104 holding is increased and the cost of the rights shares is added to the allowable expenditure in the holding​
  • Sale of rights nil paid​
    A shareholder who is offered rights shares may sell his or her rights to someone else (a "sale of rights nil paid")​
    A shareholder who does this is not selling shares but is instead selling the right to buy shares on favorable terms​
    A sale of rights nil paid is treated as a capital distribution and will often rank as a small capital distribution​
  • A chattel is an item of tangible, moveable property. A wasting asset is an asset with predictable useful life of 50 years or less.​
  • Chattels disposed for less than £6,000 are generally exempt from CGT.​