Meg Saksida uncovers some traps for the unwary with exempt capital gains tax investment assets.
Not a day seemingly passes in the UK without a recommendation in the media for the latest way to escape capital gains tax (CGT) on the sale of investments.
Recently the focus has been on gold, but what are the CGT exemptions, and more importantly, where are the pitfalls and traps?
Chattels £6,000 or under
The first, and most useful for small investments, is the chattels £6,000 rule. A chattel is a tangible moveable item. As long as the sales price and the cost are both £6,000 or under, the disposal is exempt from CGT.
Lower cost objects of art and fossils would fall into this category of exemption.
Wasting chattels
‘Wasting chattels’ include assets which at the outset were expected to last less than 50 years. Cars, motorbikes, boats, racehorses, greyhounds, clocks, and shotguns are good examples of items falling into this category. These assets tend to have moving or mechanised parts which are the source of their ‘wasting’ definition.
Expensive wine may come under this category too. Table wine, according to HMRC, would definitely be a wasting asset, but ports and other fortified wines would definitely not be. There is, however, a continuum and where an expensive bottle of red wine sits on it is not set in stone. The HMRC view is that fine wine is not a wasting asset if it is usually kept for substantial periods (i.e. in excess of 50 years).
Specifically excluded
Some investments are specifically exempt from CGT. Currency in sterling is not a chargeable asset for CGT purposes, so gold can be exempt if it is in a coin form. British gold coins such as the Britannia and Sovereigns (minted after 1837) would be exempt. Other gold bullion and products are, however, not.
Sets of items
Be cautious that the items being disposed of don’t form a ‘set’. For example, selling an antique table for £5,000 with six chairs worth £200 each would not be a disposal of six individual chairs and a table, it would be a disposal of a dining ‘set’ at £6,200 and so would be considered one chattel worth more than £6,000 and, therefore, chargeable.
Furniture sets, chessmen, books written by the same author, sets of china, stamp and coin collections are other examples of ‘sets’.
If more than one bottle of wine is disposed of to the same person, and the bottles are similar and complementary in some way (e.g. from the same vineyard and the same year), they may also form a set.
Linked transactions
Beware also of the ‘linked transaction’ rules. This anti-avoidance legislation ensures that you can’t gift one chair (for example) at a time to your family, avoiding the higher ‘set’ value.
Disposing of two or more assets which are worth more together than apart, within a period of six years, are deemed to be linked transactions and will form a ‘series of transactions’. The higher value of the items combined would be used as the proceeds as a result.
Trading
Finally, be careful with how often you are buying and selling your investments. One or two a year is probably not a business, but this is a grey area. If you start making such capital transactions every week this could be seen as trading, and as such your gain would cease to be taxed under CGT provisions and instead be taxed under income tax.
Practical tip
Avoid the traps in investing in exempt assets by ensuring you understand the relevant rules of CGT.
