Joe’s house has become rather cluttered over the years and he is having a clear-out. He decides to sell a few items at auction and takes along his friend Tom, who is an accountant. Over lunch, Tom explains the capital gains tax (CGT) treatment of the disposals of the various chattels. These include a painting, Aunt Maud’s Ming bowl and a mahogany table, all of which Joe inherited on the death of his uncle Bert a few years ago.

Tom says that certain chattels, such as cars¹ and those with a lifespan of fewer than 50 years (wasting assets, including clocks, watches and machinery²), are exempt. There is also an exemption where the proceeds are GBP6,000 or less³. Therefore, Joe’s tax return needs to include a gain on a disposal only where the proceeds are more than GBP6,000 and the chattel is not exempt.

The painting, which had been valued at GBP4,000 on Uncle Bert’s death, sold for GBP5,000, which Joe found rather disappointing. Tom confirmed that there was no need to declare this small gain as the proceeds were less than GBP6,000.

Aunt Maud’s Ming bowl, worth GBP3,000 at his uncle’s death, sells for GBP7,500. Tom explains that a form of marginal relief applies here as the asset was acquired for less than GBP6,000 but sold for more than GBP6,000. The chargeable gain is limited to a maximum of five-thirds of the difference between (a) the proceeds and (b) the chattels exemption limit of GBP6,000. To work out the gain, Joe will have to go through the following process:

Taking Joe’s bowl, which sold for GBP7,500 and for which the base cost was GBP3,000, with incidental costs of sale of GBP250, the calculation is as follows:

This five-thirds rule only applies where the asset originally cost less than GBP6,000. If the base cost is more than GBP6,000 and it is sold for more, the usual method of proceeds less cost applies.

Where Joe has sold a chattel that he acquired at a base cost above GBP6,000 for less than GBP6,000, the allowable loss is restricted by treating the disposal proceeds as GBP6,000.

Brown furniture is out of fashion, and the mahogany table, valued at GBP10,000 on Uncle Bert’s death, sells for only GBP4,500. The loss is therefore restricted by treating the proceeds as GBP6,000, giving an allowable loss of GBP4,000 (being GBP10,000 minus GBP6,000, rather than the actual loss of GBP5,500).

Joe wants to give Uncle Bert’s set of six Georgian dining chairs to his daughter. The chairs were valued at GBP16,000 on death, and Joe believes they are now worth GBP24,000. Tom explains that the gift will be treated as a disposal at market value for CGT purposes. Chattels that form a set are treated as a single asset when disposed by the owner to (a) the same person or (b) persons connected to him (as Joe’s daughter is)⁴. Therefore, on the disposal of the whole set, there is no separate exemption for each chair. As the set of chairs was acquired and is sold for more than GBP6,000, the usual proceeds less base cost applies, giving a deemed gain of GBP8,000. Joe may therefore want to make the gift in a year when this will be covered by his annual exemption (GBP10,600 in 2011/2012).