CH. 14 Chattels & Principal Residence
Exemption
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A chattel is a tangible moveable property.
A wasting asset is an asset with an estimated remaining useful life of 50 years or less.
A wasting chattel is a tangible moveable property with a useful life of 50 years or less.
They are exempt unless the asset is used for trade or profession of which capital
allowances have been or could have been claimed.
1. Gains on Non-Wasting Chattels
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The gains on non-wasting chattels are not exempt unless they are sold for gross proceeds of
£6,000 or less.
If it exceeds £6,000 the gain is limited to a maximum of 5/3 x (gross proceeds- £6,000).
EXAMPLE
Edward purchased a painting for £1,500, incurring purchase costs of £75. In October 2022, he sold the
painting for £7,000, incurring disposal costs of £350. What is his chargeable gain in 2022/23?
QUESTION
2. Losses on Non-Wasting Chattels
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If the non-wasting chattel is sold for less than £6,000 and a loss arises, the allowable loss is
restricted by assuming it was sold for gross proceeds of £6,000. This rule cannot turn a loss
into a gain; only reduce the loss to zero.
EXAMPLE
Belinda purchased a necklace for £7,500, incurring purchase costs of £400. In January 2023, she sold
the necklace for £4000, incurring disposal costs of £200. What is her allowable loss in 2022/23?
QUESTION
QUESTION
3. Chattels and Capital Allowances
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The wasting chattels exemption of £6000 does not apply to chattels on which capital allowances
have been claimed or could have been claimed.
Where a chattel on which capital allowances have been claimed is sold at a loss, the
allowable cost for chargeable gains purposes is reduced by the lower of the loss and the net
amount of allowances given. The result is no gain and no loss. This is because the relief for
the loss has already been given through the capital allowances computation.
If the chattel is sold at a gain the cost is not adjusted for capital allowances. This is because
the capital allowances will have been clawed back through the balancing charges.
4. Wasting Assets
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This is an asset with an estimated remaining useful life of 50years or less and will depreciate
over time (straight line e.g. copyrights and registered designs).
If capital allowances have been given on a wasting asset its cost is not depreciated over time.
Question
5. Private Residence Relief (PRR)
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A gain arising on the sale of an individual’s only or main private residence including a garden of
up to half a hectare is exempt from CGT.
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The gain is wholly exempt where the owner has occupied the whole of the residence throughout
his period of ownership. Where occupation has been for only part of that period, the proportion
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of the gain is exempted. Hence, periods of absence will be chargeable and the parts not covered
by the PRR exemption shall be taxed at 18% and/or 28%.
The last 9 months of ownership are always treated as a period of occupation, if at some time
the residence has been the taxpayer’s main residence.
Where part of a residence is used exclusively for business purposes throughout the entire period
of ownership, the gain attributable to use of that part is taxable. The ‘last 9 month’ rule does not
apply to that part unless that part was at some time used as part of the residence.
6. Deemed Occupation
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This is occupation which is deemed to include certain periods of absence, provided the individual
had no other exempt residence at the time and the period of absence was at some time
preceded and followed by a period of actual occupation.
These type of periods include:a) Any period(s) of absence for any reason up to 3 years in total.
b) Any period during which the owner was required by his employment to live abroad.
The employee is not required to return to the property if this has been prevented by
their employment and
c) Any period(s) up to 4 years during which the owner was required to live elsewhere
due to his work (employed/ self employed). If employed, the employee is not
required to return to the property if this has been prevented by their employment.
Question
7. Letting Relief
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When the owner lets part of the property for residential use while still occupying the rest of
it, the PRR is withdrawn on the proportion let but letting relief applies to extend the PRR
up to a certain limit.
The letting must be for residential use and the extra exemption is restricted to the lower of: a) The gain exempted by the PRR exemption.
b) The gain accruing during the letting period.
c) £40,000 (Maximum)
NB:
I.
The relief cannot convert a gain to an allowable loss.
II.
Letting does not apply where the owner moves out and lets the entire property.
EXAMPLE