Week 8

• 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​

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• The disposal of a chattel is exempt from CGT if gross disposal proceeds are £6,000 or less​

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  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).​

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• 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​

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• 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​

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  UNLESS​

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  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.​

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• 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​

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• 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. ​

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  But this exemption does not apply to movable plant and machinery which is used in business and eligible for capital allowances​

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• 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​

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• 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​

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  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​

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  To resolve this problem, the Taxation of Chargeable Gains Act (TCGA) 1992 specifies a set of share matching rules​

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• 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:​

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  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)​

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• The s104 holding is a record of the total number of shares in the pool and the allowable expenditure in relation to those shares​

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• 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 ​

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• A bonus issue is an issue of free extra shares to existing shareholders​

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  For CGT purposes, a bonus issue is treated as a reorganisation of share capital, rather than an issue of new shares ​

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• When a taxpayer receives bonus shares, these shares are simply added into the number of shares in the s104 holding​

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  The allowable expenditure in the s104 holding is not affected by a bonus issue​

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• 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​

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• 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.​