Q. I have developed an interest in collecting antiques, particularly clocks and watches. If I am lucky, I might occasionally find a bargain item that can be sold at a profit. Will I have to pay tax on that profit?
A. The first thing you will need to establish is whether you are trading since, if you are, you will have a potential liability to income tax on your trading profits. There is no hard and fast rule to apply in determining whether there is a trade. Instead, a number of factors need to be taken into account such as the type of item or commodity being bought and sold, the frequency of transactions, the length of time an item is held and the presence or absence of a profit motive.
Let us assume you are not trading, in which case we need to consider your capital gains tax (CGT) position. As a general rule, an investment that appreciates in value can create a taxable capital gain when it is sold for an amount in excess of its original acquisition cost. Luckily, there are exemptions that might come to your aid.
Most antiques will be classed as tangible moveable property, or chattels, and any gains arising will be exempt from CGT if the sale proceeds are £6,000 or less. If the proceeds of a sale exceed £6,000 then the capital gain is limited to five-thirds of the excess and in the case of a capital loss if the proceeds are less than £6,000 the loss is calculated as if the proceeds were £6,000.
In certain circumstances assets that form part of a set can be treated as sold in one composite transaction rather than several separate transactions. Examples of this could include bottles in a case of vintage wine, pairs of shotguns or sets of furniture. The rules are also modified if there is a part disposal of an asset.
If the item being sold is a “wasting asset” then any capital gain is completely exempt, irrespective of the sale proceeds received. An item is a wasting asset if its predictable useful life is less than 50 years and for tax purposes items of machinery fall into this category. Antique clocks and watches will normally be classed as machinery.
There are some modifications to these rules when the asset in question is used in a business, but if you are not trading in antiques and you have owned the items privately with no business use then any gains you make on selling your clocks and watches should be exempt from CGT. Gains on other types of antique may be exempt or partially exempt according to the rules described earlier.
Ben Chaplin is managing director of Croner Taxwise
