Selling your torch on eBay might inflame the tax man
Last updated at 15:59, Monday, 13 August 2012
While many of us will never have an opportunity to sell or carry an Olympic torch, recent publicity about this issue has highlighted the possible tax implications if you sell an item of personal property for a profit.
This can happen in one of two ways. Occasional sales of items can be subject to capital gains tax (CGT) but regular dealing can sometimes be treated as trading with any profits subject to rates of income tax – which are, of course, higher.
Indeed, HM Revenue & Customs (HMRC) has recently been giving pretty close attention to people ‘trading’ on the internet, on sites like eBay. These sites make it much easier for the (computer friendly) man in the street to buy and sell goods and HMRC clearly believes that quite a bit of tax is being lost.
Normally, it will be pretty clear whether a trade is actually taking place but an investigation by the taxman can be a pretty traumatic experience for the layman and the cost of losing the argument is usually very substantial.
As with anything of this nature, it is better to tell the taxman if you do owe money rather than wait for him to come to you.
If you owe tax on income you have not declared then HMRC will seek interest and a penalty (basically a fine) as well as the tax. The fine is much reduced if you tell the taxman before he comes to you. It also goes without saying that being well-advised when being investigated is far better than not being advised at all – or taking your advice from the taxman.
Most people selling goods will not be trading however and need only consider CGT.
A charge to CGT may arise if you sell a chattel (an item of personal, moveable property) for more than £6,000. The following facts will need to be taken into account when deciding if gains, or losses, need to be declared:
- Chattels with a predictable useful life of 50 years or less are normally exempt from CGT.
- Chattels include items such as jewellery, household furniture, paintings, antiques, items of crockery and china, plate and silverware etc.
- There is a special formula for calculating a capital gain where a chattel is sold for between £6,000 and £15,000. The taxable gain is calculated as the lower of the actual gain or 5/3rds of the excess over £6,000.
- Sometimes the sale of a chattel may be for less than the amount paid for it. In such circumstances a capital loss can sometimes be claimed against other capital gains.
If you think there may be a CGT issue, then don’t despair as there still may not be any tax to pay. We all have an annual exemption of £10,600 and judicious timing of a series of disposals or a husband and wife selling an asset together can often help.
So take care to consider the possible CGT consequences the next time you sell an item of personal property caught by these regulations.
- For further information on capital gains tax or any other tax matters email email@example.com or call Armstrong Watson on freephone 0800 195 2161.
First published at 14:09, Friday, 03 August 2012
Published by http://www.cumberlandnews.co.uk