capital gains and chattels

A refresher on CGT and chattels

Chattels are defined as ‘tangible moveable property’. They include, art, antiques, jewellery, fine wine, racehorses and other collectibles and fall into two groups – wasting and non-wasting

Wasting chattels

A wasting chattel is a chattel with a useful life not exceeding 50 years. Useful life is determined at the date of acquisition, having regard to the purpose for which the chattel was obtained. A chattel which is wasting will be exempt from capital gains tax and any losses on it will not be allowable.

So, if a taxpayer buys a racehorse or fine wine and later sells it at a profit, the gain will be exempt from capital gains tax because it is a gain on the sale of a wasting chattel.

HMRC regards assets such as clocks and watches, trains, boats and yachts as machinery. 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. 

There is one instance when wasting chattels are not exempt from capital gains tax. This is when the wasting chattel is used in trade and capital allowances have been claimed or could have been claimed on them. There would therefore be two potential tax liabilities arising from the sale of business machinery at a gain: the first as a balancing charge, and the second in the form of tax on the chargeable gain. Any tax allowable loss arising on the sale of business plant and machinery is reduced to take account of relief given by capital allowances. 

Non-wasting chattels

A non-wasting chattel is tangible movable property with an expected life of more than 50 years. Examples of non-wasting chattels include fine art, antiques and jewellery.

For non-wasting chattels, the following rules apply:

Gains on non-wasting chattels when proceeds are lower than £6,000

S262 of Taxation of Chargeable Gains Act 1992 (TCGA) states that a gain accruing on a disposal of an asset which is tangible movable property shall not be a chargeable gain if the amount or value of the consideration for the disposal does not exceed £6,000.

Example 1

Karen bought a painting for £1,000 and sold it for £5,900. The gain of £4,900 is exempt from capital gains tax because the disposal proceeds do not exceed £6,000.

Losses on non-wasting chattels when proceeds are lower than £6,000 and the cost of the asset was more than £6,000.

According to s262(3) of TGCA, the loss accruing on the disposal of an asset is allowed. However, for the purposes of computing the amount of a loss accruing on the disposal, the consideration shall – where less than £6,000 – be deemed to be £6,000.

Example 2

Eve bought a painting for £10,000 by a famous Polish painter; two years later she sells it for £3,000 and incurs expenses of £50. The cash loss is £7,050 (being original cost £10,000 less actual proceeds of £3,000 plus cost of sale).

However, for CGT purposes, the allowable loss is restricted as gross proceeds are deemed to be £6,000. The allowable loss is therefore £4,050 (being deemed proceeds of £6,000 less cost of sale £50 less cost of painting £10,000).

Gains on non-wasting chattels when proceeds are higher than £6,000 (the 5/3rds rule)

If the amount of consideration exceeds £6,000 but the original acquisition cost was less than £6,000, s262(2) of TCGA allows the gain to be capped at 5/3 of the gross proceeds less £6,000.

This means that when calculating the gain on the sale of a chattel where proceeds exceed £6,000 but the original cost was less than £6,000 two computations are required: 

  1. calculate the gain in the normal way
  2. calculate the gain using the 5/3 rule.


The lower of these will be the gain.

Example 3

Patricia bought a rare Chinese vase for £2,000 and a few years later she sold it for £9,000. She incurred auction expenses of £500.

As the proceeds exceed £6,000 but the original acquisition cost was less than £6,000, two computations are required:

  1. Calculate the capital gain: proceeds of £9,000 less cost of sale £500 less cost of purchase £2,000, equals gain of £6,500.
  2. Apply the 5/3 rule: 5/3 x (£9,000-£6,000), equals gain of £5,000.

The gain is the lower of two, ie £5,000.

Gains on non-wasting asset when the asset was bought and sold for more than £6,000

If an asset is bought and sold for more than £6,000, the gain is calculated in the normal way by taking proceeds less cost.

It is worth noting that the normal rules for calculating gains or losses on the disposal of a single chattel may not apply if the taxpayer disposes of a ‘set’ of chattels. A set is a number of chattels that are similar and complementary to each other and are worth more together than separately; for example books by the same author or matching ornaments. If the parts of the set are sold to the same person, or a number of people acting together, then the £6,000 limit applies to all of the set collectively and not to each member of the set individually.

You can find more in the HMRC manuals.