Antiques can offer up some tax advantages

There are benefits to be had from collecting chattels.
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As we approach the end of the tax year, small savers turn their minds to saving tax with an ISA. ISAs, like the Peps that went before them, shelter your investment not only from income tax, but from capital gains tax as well. Without the ISA wrapping, CGT would start to bite as soon as your year's profits reached £7,100, and can take as much as 40% of your gains.

As we approach the end of the tax year, small savers turn their minds to saving tax with an ISA. ISAs, like the Peps that went before them, shelter your investment not only from income tax, but from capital gains tax as well. Without the ISA wrapping, CGT would start to bite as soon as your year's profits reached £7,100, and can take as much as 40% of your gains.

The good news is that not all investments are subject to capital gains tax. The taxman views collectibles such as antiques, rare books or works of art as a class apart from more conventional investments, and allows you to take the first £6,000 of any sale proceeds tax free. Assets like these are defined as chattels, a 13th century word meaning items of movable personal property.

The main exception to the tax-free rules are assets traded professionally for profit, and the line may be easily crossed, says Simon Philip, a private client partner at Arthur Andersen: "When do you stop being a private individual who has a nice piece and decides to sell it and start to become an amateur Lovejoy?

"I think the Revenue would say a series of speculative transactions is starting to become a trade, in which case you're into income tax treatment rather than capital gains tax."

Providing you do not stray into trading, the first £6,000 of sale proceeds from a chattel is tax-free. Where your proceeds fall between £6,000 and £15,000, marginal relief limits your maximum taxable gain to five thirds of the excess over £6,000.

Say that you bought a chattel for £3,333, and later sold it for £10,000, producing a cool gain of £6,667. The taxable gain would be £667 times five thirds, or £1,111.66.

Philip says: "Marginal relief is designed so that CGT doesn't catch people too badly. It's not like shares, where you're investing as part of your financial planning. It's a relief that's there to reflect the fact that these are incidental capital gains rather than mainstream ones."

Where your proceeds reach more than £15,000, the effect of marginal relief is reversed, and sellers will find the mainstream CGT rules produce a lower bill. Fortunately, you can opt to pay under whichever system you prefer.

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