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TaxationWeb by Mark McLaughlin ATII TEP

The sale of antiques for a profit may be taxable or exempt, depending on the circumstances. This information sheet explains why. Antiques are a type of chattel, and the meaning and implications of such assets are also outlined.

Introduction

The sale of antiques for a profit may be taxable or exempt, depending on the circumstances. This information sheet explains why. Antiques are a type of chattel, and the meaning and implications of such assets are also outlined.

What is a ‘Chattel’?

A ‘chattel’ is defined for tax purposes as ‘tangible moveable property’. This definition is broad enough to cover a wide range of assets for capital gains tax (CGT) purposes, including antiques.

Are all Chattels Taxable?

No. The sale of chattels which are ‘wasting assets’ do not generally give rise to a chargeable gain or allowable loss for CGT purposes. A ‘wasting asset’ is broadly one with a predictable life not exceeding 50 years. The nature of antiques is such that they are unlikely to qualify as wasting assets.

In the case of other chattels, a gain is not chargeable to CGT if the sale proceeds do not exceed £6,000.

Antiques Sold for More Than £6,000

If the sale proceeds exceed £6,000, a partial CGT relief (known as ‘marginal relief’) is available. The gain is limited to five-thirds of the difference between the sale proceeds and £6,000.

EXAMPLE Mr Brown sells an antique table for £7,000. The table cost £2,900 two years ago. Without any relief, the gain would be £4,100 (i.e. £7,000 - £2,900). However, with marginal relief the gain is as follows: 5/3rds x (£7,000 - £6,000) = £1,667

If the sale proceeds are less than £6,000 and a loss arises, the loss is restricted by substituting the actual sale proceeds with £6,000. The amount of loss relief attributable to chattels is therefore limited.

Selling Part of a Set

There are rules to prevent the beneficial tax treatment for chattels by selling assets forming part of a set (e.g. six antique dining chairs) to the same or connected persons at different times. In those circumstances, the separate sales are treated as a single transaction. This means that if the total sale proceeds exceed the £6,000 limit, the full exemption is lost, and only partial relief will be available.

Taper Relief and the Annual Exemption

Taper relief reduces the amount of capital gain on assets according to the length of ownership and whether the asset in question was used for business purposes. By their nature, antiques are often held for long time periods, but are non-business assets. The rate of non-business asset taper relief for disposals during the 2002/03 tax year (assuming that the antique were held before 17 March 1998) is 15%.

Taper relief reduces the gain after ‘marginal relief’ (see above). To the extent that the vendor’s annual capital gains tax exemption (currently £7,500) has not been used elsewhere, the remaining gain may be reduced or eliminated.

Husband and Wife Planning

If one spouse owns antiques, tax savings are possible by transferring some of them (or possibly even a share in a single antique) to the other spouse. The transfer itself does not give rise to a capital gains tax liability. The subsequent disposal of antiques by both spouses will mean that two annual exemptions are potentially available, and there is possible scope for any unused part of their basic rate tax bands to be set against any remaining gains.

Am I Trading in Antiques?

The CGT rules outlined above only apply to persons who do not trade in the assets sold. Dealers are taxed on their business profits from buying and selling antiques. However, depending on the circumstances involved, the Inland Revenue sometimes argue that occasional transactions (or even a single one) represents a trade of antique dealing.

In drawing a conclusion, the Revenue will consider not only the number and frequency of similar transactions, but also such additional factors as the length of ownership and the reason for sale. If in any doubt, professional guidance should be sought.

Help is at Hand!

For further advice on the tax treatment of chattels or other tax matters, contact Mark McLaughlin on 0161 – 245 1093, or by e-mail mark@forbesdawson.co.uk