Making a ‘gain’ (also known as a profit) when you dispose of an asset which has increased in value often means you need to pay Capital Gains Tax. Some assets, known as ‘chattels’ are treated differently to other types of asset and this can affect your tax bill, so in this article we’ll go over what HMRC considers a chattel and what this means for Capital Gains Tax.

What is a Capital Gain?

Capital Gains Tax is a tax on the ‘gain’ you get for disposing of an asset.

Start with the amount you got for the disposal, and then deduct the cost of acquiring the asset, the cost of disposing of it, and anything you spent to increase the asset’s value whilst owning it. The amount left over is your ‘gain’.

How does Capital Gains Tax normally work?

If you add together all your gains from a single tax year and the total amount is more than the annual exempt amount (AEA), then you’ll normally need to report and pay Capital Gains Tax – unless the assets are considered chattels (we’ll come back to these in the next section).

The allowances for individuals and trustees have different thresholds.
 

What is a chattel for Capital Gains Tax?

Chattels get a special mention because this type of asset has a different kind of exempt amount for Capital Gains Tax – known as the chattel exemption.

HMRC use the term ‘chattel’ to indicate a tangible and moveable asset.

A house, for example, isn’t a chattel because you can’t normally move it. The intellectual property value of a brand isn’t a chattel either, because this is an intangible asset.

HMRC do give a few examples of what they would normally consider chattels, including:

• Items of household furniture
• Non-stirling coins
• Paintings, antiques, items of crockery, plates, and silverware
• Cars, lorries, motorcycles
• Items of plant and machinery not permanently fixed to a building
• Wasting assets (which have a predicted life of 50 years or less)

Is the chattel exemption different to the annual exempt amount?

Yes, the chattel exemption is different to the annual exempt amount (AEA). The AEA is a general annual allowance, whereas the chattel exemption applies to chattels sold for £6,000 or less. If the sale proceeds are £6,000 or less, then the gain is exempt from tax.

This £6,000 exemption is applied to each disposal of a chattel – so it’s not an allowance for the year.

A word of caution here. This might encourage someone to artificially split up a set of items which is worth more than £6,000, and then sell each one individually to the same person for £6,000 or less each time. This would make the disposal of each chattel exempt.

Unfortunately HMRC see this as a way to avoid paying tax, which is why this particular loophole gets closed down with special rules for ‘chattel sets’.

What is a chattel set?

A chattel set is a group of similar items (chattels) combined into a set – which increases their value. HMRC use the example of a chess set. You buy individual chess pieces and a board separately, but when you put everything together (and create a chattel set in the process), they increase in value.

Even if you go on to sell the items separately, they still form part of a set. As such, you must consider the total amount you get from selling all of the pieces.

 
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