Have you ever sold an item on an online auction site like eBay? How about a car boot sale? Maybe the for sale section of a newspaper? Perhaps you have used a consignment store where the owner sells an item on your behalf?
The chances are you will have sold a personal possession at some point in your life to raise money for a rainy day fund.
For the vast majority of us, the tax implications of selling an item we own is not something that we’ll ever have to consider. After all, making £10 here and £20 there for a used computer game or dress you no longer wear is not going to be of any interest to HMRC.
However, if you sell something with a significant value - and sell it for more than you initially paid for it - then you may be liable to pay Capital Gains Tax.
For example, perhaps you splurged and bought a painting 25 years ago for £5,000. It’s been languishing in the attic for the past decade and you decide to sell it. However, in that quarter decade that painting became very sought after as a collectors’ item and you are able to sell it for £25,000.
This means that you made a gain of £20,000 - and you are taxed on that profit.
There are some exceptions to the rules. For example, you wouldn’t have to pay Capital Gains Tax if what you are selling is sold for less than £6,000 or if the asset has a useful life of less than 50 years. In addition, you wouldn’t pay if all the gains made in a year are under your tax-free allowance - the Annual Exempt Amount - which for 2019/20 tax year is £12,000.
There are also some rules on Capital Gains Tax surrounding the sale of possessions which you may not have bought personally. For example, if you went on to sell a gift that you received or an item that was inherited you may well have to pay the tax on gain that arises from its disposal. However, it’s not always clear cut. The tax may not apply, for example, on gifts from a spouse or civil partner and some tax reliefs are also available.
While it is relatively easy to determine what assets you may have to pay Capital Gains Tax on when sold, determining the correct rate of tax to pay can be a little trickier as it depends on the total amount of your taxable income and your marginal rate of personal tax.
You should be able to work out what rate of Capital Gains Tax you need to pay by visiting the HMRC website but remember that you may be able to apply for certain forms of tax relief and the rules are also different for business owners.
If you are selling an asset and think you might need to pay Capital Gains Tax on it, consult your accountant who will be able to advise on how to make the most from its disposal.