Chattels and private residence Flashcards
Chattels Private residences Calculating PPR relief Tax planning
What is the definition of a chattel in tax terms?
A chattel is a tangible, moveable property, such as furniture, cars, or antiques.
Chattels are physical items, and their tax treatment depends on whether they are classified as wasting or non-wasting chattels, which affects whether they are subject to capital gains tax (CGT).
How are chattels classified for tax purposes?
Chattels are classified as:
- Wasting chattels – items with a life of 50 years or less (e.g., racehorses, machinery)
- Non-wasting chattels – items with a life of more than 50 years (e.g., paintings, antiques, jewellery)
Wasting chattels are generally exempt from CGT due to their short lifespan, whereas non-wasting chattels may be taxable unless specific exemptions apply.
What is the tax treatment for non-wasting chattels if both the cost and proceeds are under £6,000?
If both the cost and proceeds are below £6,000, the chattel is exempt from capital gains tax.
Low-value non-wasting chattels are CGT-exempt, which makes small personal items like collectibles or art less likely to trigger tax liability.
What happens if the cost is over £6,000 but the proceeds are under £6,000 for a non-wasting chattel?
You must restrict the loss by treating the gross proceeds as £6,000, regardless of the actual sale price.
If proceeds are below £6,000 but costs were higher, losses are capped, preventing individuals from claiming disproportionately large tax deductions on these disposals.
What happens if the cost is under £6,000 and the proceeds exceed £6,000 for a non-wasting chattel?
The taxable gain is the lower of:
- The normal capital gain
- (Gross sale proceeds - £6,000) * 5/3
The “5/3 rule” limits the gain on non-wasting chattels with high proceeds but low acquisition costs, reducing excessive tax charges on small valuable items.
How is a non-wasting chattel taxed if both the cost and proceeds exceed £6,000?
The disposal is treated like any other capital gains tax (CGT) transaction, with no special exemptions or reductions.
Higher-value non-wasting chattels are subject to full CGT rules, meaning gains are calculated as with any standard taxable asset.
How is private residence status determined for capital gains tax purposes?
Private residence status is based on periods of actual occupation. Properties not lived in by the owner are fully chargeable to CGT, and part-use for business requires proportional CGT calculations..
Principal private residence relief (PPR) reduces CGT for homes used as the taxpayer’s main residence, but business use or non-occupation can affect this relief.
What are the capital gains tax rates for residential property?
For 2023/24, gains on residential property are taxed at:
- 18% for basic rate taxpayers, and
- 28% for higher and additional rate taxpayers.
These rates are higher than the standard CGT rates, reflecting the additional tax burden on residential property gains.
How is Principal Private Residence (PPR) relief calculated?
PPR relief is calculated using the formula:
Period of occupation / Total period of ownership * Gain
The proportion of time the property was your main home reduces your CGT liability on the sale of your property.
What happens when a property is disposed of in relation to CGT?
- Fully exempt if the property was the principal private residence for the entire period.
- Fully chargeable if never occupied.
- Partially exempt if occupied for part of the ownership period, with PPR relief applied proportionally.
The tax treatment of property depends heavily on periods of occupation and whether the property was ever used as a main residence.
What periods of absence are treated as deemed occupation for PPR relief?
Periods treated as deemed occupation include:
- The last 9 months if previously occupied.
- Periods abroad for employment.
- Up to 4 years working elsewhere in the UK.
- Up to 4 years of self-employment away from home.
- Any period up to 3 years for other reasons.
Deemed occupation rules allow taxpayers to maintain PPR relief during certain periods of absence from their property.
How can one tax plan to maximise Principal Private Residence (PPR) relief?
- Plan periods of absence to ensure they qualify for deemed occupation.
- Ensure actual occupation precedes and follows any absence.
- Sell the property within 9 months of leaving to use the final period of deemed occupation.
Careful planning of residency and sales timing can maximise PPR relief and minimise CGT on property disposals.
