CGT on Chattels & Wasting Assets

People often worry about paying CGT on gains above the annual allowance (£10,600) on the sale or gift of investments, and second homes or buy to let property. Bigger gains can be “held over” when assets are transferred into a discretionary Trust, but that has become less attractive with gifts into Trust bearing Inheritance Tax at 20% over the £325,000 nil rate band threshold.

What are not so well known are the CGT exemptions for “alternative investments” such as  “chattels” and “wasting assets” as long as you are not trading in them.

Chattels are tangible moveable property – from the everyday contents of your home, including your musical instruments, shotguns, contents of the wine cellar, works of art and jewellery, to your  cars, cats, dogs and horses.

Individual items (but beware special rules if part of a set) sold for up to £6000, or not exceeding that  value when gifted to your children, qualify for total exemption of the gain. If the proceeds of sale or value of a gift of a chattel exceeds £6000 the chargeable gain is limited to five-thirds of the excess – a form of taper relief. But there are some interesting interactions where a chattel is also a “wasting asset” or perhaps classified as “machinery”.

Wasting assets are chattels deemed to have a useful life of no more than 50 years. Fairly obviously your most precious claret will have a shelf life of less than 50 years, even if your brandy may last longer, but all will be treated as wasting assets.

Less obviously your grandfather’s shotgun, made in the 1920s and still in regular use thanks to loving care and maintenance by Holland & Holland should be accepted as a wasting asset as it is “machinery” – or so the HMRC website confirms, if a little reluctantly. There is an interesting debate to be had as to whether a shotgun is “machinery” or not, compared with an antique clock which is still keeping in time after more than a century.

The significance of a wasting asset compared with other chattels is that they are wholly exempt from CGT, and not limited to £6000, with some taper relief above that level.

However, do remember if considering the gift of valuable paintings, furniture, porcelain, jewellery or other family heirlooms to your children of grandchildren, that CGT may be payable if the open market value at the date of gift is over the £6000 threshold – depending of course on what the base cost may have been when you inherited it, or the purchase price when you bought it.