Capital games with capital gains inspired by the taxman and `Antiques Roadshow'

An earlier article in this series looked at capital gains tax (CGT) generally. Having had a request for more detail on what happens when the taxman watches the Antiques Roadshow, let's have a look at what happens when you sell "chattels".

The word sounds rather medieval. Is it something to do with barons selling off their daughters? No - but sell a chattel (defined as tangible, movable property) and you may end up with CGT on any gain arising.

There are a range of exemptions which can help cut your tax bill. When you sell the family car for a more sporty model, you are not taxed on any gain as cars are not chargeable assets - after all, you'd normally make a loss on a car, so no tax relief for the losses. This even covers vintage cars.

"Wasting" assets - anything with a predictable life of less than 50 years - are also outside the net. Anything mechanical tends to count as a wasting asset automatically.

This exemption can rather creatively be used to cover such things as clocks, watches, fine wine and even model railway engines. So that prized, boxed Hornby set from your childhood won't attract tax even if you sell it for tens of thousands of pounds. Of course, once again there is the drawback of no tax relief when you sell such things at a loss.

So what if Great Aunt Ethel leaves you a vase which you later discover is a Ming? Obviously it doesn't count as a wasting asset as it has survived hundreds of years already.

The next stage is an exemption for any item sold for pounds 6,000 or less. If the vase turns out to be worth more than pounds 6,000, then you are in the tax net - selling for pounds 10,000 when you inherited it at a value of pounds 2,000 would mean a taxable gain of pounds 7,500 (if we assume indexation - inflation - allowance of pounds 500). But a curious provision gives some relief: the gain is limited to five-thirds of the sale price less pounds 6,000.

In the case of the Ming vase sold for pounds 10,000, it means you would only pay tax on a gain of pounds 6,667. However, if you make a bad deal and buy something for pounds 6,000-plus and sell for less than that, there is some loss relief.

This pounds 6,000 limit might set you thinking when you are about to sell that canteen of antique cutlery. How about selling off every knife and fork to the same buyer and then claiming that each piece should warrant the pounds 6,000 exemption? Unlucky - the canteen is seen as a set and as such only has one exemption.

Similarly, if you were lucky enough to own a set of four Chippendale chairs you could only claim one exemption if you sold them to the same buyer. There is some scope for "lotting" them at auction, so that the set has four separate entries in the catalogue and perhaps encourages more than one buyer. The drawbacks of this is that a matching set is usually worth more than four single chairs - so the net result may be worse than selling as a set and taking the tax hit.

What is interesting is that a pair of objects, such as a set of duelling pistols, may not count as a set. Case law suggests that a set comprises three or more objects. Each pistol would get a separate pounds 6,000 exemption even if they were sold to the same buyer.

To go back to our Chippendale chairs, one way of mitigating CGT would be to transfer two of them to your (trustworthy) spouse, as transfers between couples do not attract a tax charge. Then each partner could separately sell their "pair" of chattels, perhaps each getting the pounds 6,000 exemption on their sale.

Clearly this "asset-splitting" has to be genuine and there may be a need to prove to the tax inspector that this was legitimate, with separate ownership established well before any sale and the monies received put into separate accounts under each spouse's name. Again, remember the power of the set - what gives the best result for tax purposes may not necessarily produce the best commercial result.

John Whiting is a tax partner at Price Waterhouse