Does CGT apply to cars and watches?
Capital gains tax tends to be typically associated with profits made on shares or property, but why these items and not others, such as cars and watches for example? We look at dealing with family heirlooms and personal possessions when it comes to tax.
The UK tax system includes some interesting quirks. For example if you choose to sell your car collection or a horse you’ve owned, you don’t face UK capital gains tax (CGT) but if you sell your shares then you do.
CGT and cars (and horses!)
So why do you pay CGT when you sell shares but not when you sell a vintage car? The short but rather technical answer is that your car, even if it’s a valuable classic, is classed as a “wasting asset” – an item with an expected useful life of less than 50 years. The same concept applies when it comes to cars and road tax – you have to pay it unless your car is more than 40 years old; then it becomes exempt. Yet if you’re buying and selling cars to make a profit, different rules apply and tax is due on any profits. A horse is also considered to be a wasting asset and so the same rules apply to CGT unless, again, you’re buying and selling horses to make a profit.
CGT and watches
What if you receive a watch as a gift? Is there a tax bill? The general rule is that if you make a gift to someone who isn’t your spouse, civil partner or a qualifying charity, CGT might apply, but only if the item is more than £6,000. This applies to any chattel – the word used to describe personal possessions including items of household furniture, paintings and antiques, cars, motorcycles and so on. So, if you make a gift it’s important to understand the market value of the asset when you pass it on; this determines whether tax is due or not.
Some vintage watches are now worth far more than their original cost. Thankfully, for UK tax purposes, a watch is regarded as a machine with an expected useful life of less than 50 years. Any gain made on disposing of the watch is therefore exempt from CGT. However, just like cars and horses, if you’re buying and selling watches to make a profit, you’re likely to be charged to tax on any gains you make.
Don’t forget…
Of course, outside of these rather specialist allowances, CGT does apply in other areas, and can carry a nasty sting. This has been exacerbated by the reduction in the CGT allowance. So, if you are realising any gains on shares, selling a property for a profit or enjoying dividends on other investments and funds, beware of the CGT bill which could face you. CGT can also apply if you transfer assets outside of your estate; if you are planning to do so, then it’s important to seek expert advice.
To discuss any aspect of tax planning please contact your nearest office.
