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1. Chattels
HS293 - There is no statutory definition of a chattel. The accepted definition is that it is a tangible movable asset - it can be touched and moved!
Chattels are exempt from capital gains tax if the disposal proceeds are less than £6,000. This limit applies to each chattel. If the disposal proceeds exceed £6,000 the gain is limited to 5/3rds of the excess over £6,000. For example, the gain on a chattel sold for £8,000 would be limited to £2,000 x 5/3 = £3,333.33. IRIS does not compute chattel exemption
When disposing of a chattel at a loss and the disposal proceeds are less than £6,000 the proceeds are deemed to be £6,000 thus restricting the allowable loss. In such cases enter disposal proceeds of £6,000 rather than the actual amount received.
A wasting asset is exempt from capital gains tax. It is an asset with a predictable life of less than 50 years. Assets which qualify for capital allowances (with the exception of motor cars) are not exempt although there may be apportionment if the asset only partly qualifies for capital allowances. Commodity dealings on a terminal market are not exempt.
HS283 - The taxpayers own home is exempt from capital gains tax. The tax return requires that an indication is made on page 2 of the tax return when moving house during the tax year.
A house that has been a principal private residence (home) for part of the time of ownership but has been let for the rest of the time, will be subject to capital gains tax net of principal private residence relief (PPRR) when it is sold. If part of the property is let while the rest remains the taxpayer's home, the capital gain is apportioned according to the percentage being let. IRIS does not compute PPRR.
The basic computation is total gain x (period of occupation / total period of ownership)
The period of occupation is deemed to include the following:
The last three years of ownership;
Any period prior to 31/3/1982;
Any period during which the owner was required by his employment to live abroad;
Any period, not exceeding four years, during which the owner was required by his employment to live elsewhere in the UK.
The most common type of enhancement to an asset is an extension to a building. Costs of repairing, maintaining or insuring an asset are not classed as enhancements. Indexation allowance runs from the date of the enhancement to the date of sale or April 1998 if earlier.
If the asset was held on 31 March 1982, two calculations are required. One based on the market value at 31/3/82 and the second based on the original acquisition costs. The chargeable gain will be:
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Result of calculations |
What to use |
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Both calculations produce a gain |
The smaller gain |
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Both calculations produce a loss |
The smaller loss |
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One produces a gain and the other a loss |
Nil (no gain, no loss) |
When calculating the results the same indexation allowance is used in both calculations. Whichever figure (original costs or market value at 31/3/82) is higher should be used as the basis for the indexation allowance.
For example a painting is acquired in May 1970 for £10,000 with auctioneer's fees of £500 and is valued on 31/3/82 at £50,000 then sold in August 1998 for £200,000.
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Proceeds Less acquisition (incl costs) Less market value (at 31/3/82) Less indexation allowance
Gain |
200,000 -10,500
-52,350 ------------ 137,150 |
200,000
-50,000 -52,350 ---------- 97,650 |
The taxable gain will be the smaller gain: £97,650. The indexation allowance is based on the market value (because it is higher than the original costs). The indexation factor is 1.047 (162.6 - 79.44) / 79.44.
HS280 - It is possible to make a once-in-a-lifetime irrevocable election to have all assets held at 31/3/82 to be valued solely at their 31/3/82 market value. This is of benefit if the market value is higher then the original costs and may allow losses to be claimed where the two calculations would have produced a no gain/no loss situation.
The election is irrevocable and applies to all holdings. It is not possible to 'cherry-pick' the holdings that would favour this treatment and ignore the others. The effect of the election is to simply use the 31/3/82 market value in all gain calculations and ignore the original costs.