CGT is levied on most types of asset including tangible and intangible property. Examples of the latter include shares, options, goodwill, leases and copyrights and examples of the former include land and chattels.
Chattels are defined as tangible moveable property; for example, jewellery; antiques; yachts; books; wine; clocks; etc (but, of course, not land as it’s not moveable).
For CGT purposes chattels are divided into those which are wasting chattels (WCs) and those which are non-wasting chattels (NWCs).
Chattels: Wasting chattels
WCs are those with a predictable life of 50 years or less. Examples include washing machines, televisions, radios, caravans and yachts. In addition, antique watches and clocks and vintage motor-cycles (despite a predictable life in excess of 50 years) are treated as WCs.
WCs are exempt from CGT which also means that any losses are not allowable capital losses. Typically, the value of a WC decreases over time and thus on sale a capital loss inevitably arises; as HMRC do not wish an individual to have a proliferation of usable capital losses the quid pro quo is that any capital gain (which is most unlikely to arise) is exempt from CGT.
Chattels: non-Wasting chattels
NWCs are those chattels not falling to be treated as WCs. Examples include antiques; jewellery; fine wines; vintage cars; etc.
NWCs are also exempt from CGT but only where the disposal proceeds do not exceed £6,000. Where the disposal proceeds exceed £6,000 the capital gain is restricted to 5/3rds of the excess of the proceeds over £6,000.
Joe Brown purchased the following assets:
(1) an antique painting £3,500 (sold for £7,500).
(2) a necklace £1,500 (sold for £5,000).
(3) a bottle of fine wine £6,000 (sold for £6,750).
A CGT liability arises on the sale of the painting on a capital gain of:
[£7,500 - £6,000] x 5/3 = £2,500 (despite the actual capital of £4,000).
There is no CGT liability on the sale of the necklace as sale proceeds do not exceed £6,000.
A CGT liability arises on the sale of the wine on the capital gain of:
[£6,750 - £6,000] = £750 (no restriction ie [£6,750 - £6,000] x 5/3 = £1,500 is appropriate).
Where a capital loss arises but the disposal proceeds are less than £6,000 in calculating the allowable capital loss £6,000 is substituted for the actual sale proceeds.
Harry Blog purchased a painting for £8,000 and sold it for £5,000. The actual capital loss of £3,000 is restricted to an allowable capital loss of [£6,000 - £8,000] = £2,000.
Husband and wife transfers
Every individual is entitled to an annual exempt amount (AEA) per tax year of capital gains which are CGT free. For the current tax year 2011/12 (ie 6 April 2011 to 5 April 2012) the AEA is £10,600 (ie the first £10,600 of capital gains are CGT free; only the excess over £10,600 is subject to CGT).
If therefore a wife owns a piece of jewellery (original cost £6,250) and an antique painting (original cost £7,200) which, on sale, are likely to give rise to capital gains of £6,000 and £7,000 respectively it may be a good idea for the wife to transfer ownership of one of the items to the husband (to whom it then belongs) to sell. This will then enable each spouse to utilise their AEA such that no CGT liability arises on the sale of each of the items (transfers inter-spouse do not precipitate CGT liabilities).
The above applies whether the spouses are both UK domiciled (very broadly, British), both non-UK domiciled or one spouse is UK domiciled and the other spouse is non-UK domiciled but not to other family transfers (eg father to son).
Where a married couple are considering purchasing a NWC it may be sensible to purchase it jointly so that on sale, where the consideration is likely to be £12,000 or less, no CGT charge arises as the sale proceeds for each spouse are not more than £6,000.