Do I have to pay taxes on selling personal items ?
Selling personal chattels in the UK can trigger Income Tax or Capital gains tax liabilities. By understanding the tax implications, keeping meticulous records, and seeking professional advice when necessary, sellers can navigate the process with confidence and ensure compliance with HM Revenue & Customs regulations.
Trading Income
What is the most recent guidance from HMRC?
HMRC has released updated guidance for individuals who engage in the regular sale of goods or services via online marketplaces. This guidance specifies that such activities could be categorized as a ‘trade’ for UK tax purposes. In such instances, taxpayers may be required to declare and pay income tax on the proceeds generated from buying and selling goods as part of a trade or business conducted on platforms like eBay.
Online selling pertains to small businesses retailing products through digital platforms such as Amazon, eBay, Etsy, and similar marketplaces. It is crucial for taxpayers to understand their entitlement to vend unwanted personal items without incurring capital gains tax on the profits derived from these transactions.
If individuals are merely disposing of unwanted items, like those found in their attic or garage, it is improbable that they will be liable for tax. However, if they purchase goods for resale or manufacture items for profit-making purposes, they are likely engaged in a trade and therefore obliged to pay tax on their earnings.
Tax allowances for selling your personal items
There is also a £1,000 tax allowance for miscellaneous trading income. This is known as the Trading and Miscellaneous Income Allowance. Where this £1,000 allowance covers all the individual’s relevant income (before expenses), the income is tax-free and does not have to be declared to HMRC.
What details will digital platforms share with HMRC
Traders should note that since 1 January 2024, online marketplaces must collect and report seller information and income to HMRC. These digital platforms must report sellers’ income by January 2025. The changes are an internationally agreed set of rules for Online marketplaces to report certain information to HMRC.
If you have trading income from selling goods online, you must register to pay a self-assessment tax return.
Capital Gain
If you are selling your own assets, then we are looking at capital gains, where the annual exempt allowance is £6000 for the current tax year. If the gains from the assets that you dispose of are below this figure, then there is nothing to report to HMRC.
These days, ‘chattels’ have a more precise meaning, at least in the eyes of the taxman. It’s a legal term meaning tangible, movable property. Essentially, most of your personal possessions count as chattels. Examples might include:
· Furniture
· Vehicles
· Valuables such as paintings, antiques and jewellery
· Hi-fi systems
· Clothes
· Plant and machinery that’s not permanently fixed to a building
· Incidentally, cattle are still regarded as chattels, as are other animals from cats to racehorses.
Some chattels are subject to Capital Gains Tax when you sell them (we’ll cover the exemptions in a minute).
At its simplest, if you sell a chattel and you make a profit of more than £6,000 (£3,000 from the tax year beginning 2024), you need to record the gain in your Self-Assessment Tax Return. The calculations below apply if the disposal proceeds are between £6,000 and £15,000 (If the proceeds exceed £15,000 you will need to use different calculation)
Let’s take an example.
You have a painting you bought for £3,000 and sold for £10,000.
Because the disposal proceeds are more than £6,000, you need to make the following calculation:
Subtract £6,000 from the sale price of £10,000. This is £4,000.
Multiply this by 5÷3 (£4,000 x 5÷3). This comes to £6,667.
This is the maximum chargeable gain. To work out the net gain, you do the following:
Take the disposable proceeds of £10,000
Subtract the original cost of the painting (£10,000 – £3,000 = £7,000)
You enter whichever figure is lower in your tax return – in this case it would be the maximum chargeable gain, rather than the net gain.
What if you make a loss?
You can also claim a loss when you dispose of a chattel. If you dispose of an item for less than £6,000, you have to make your calculation as if the proceeds were £6,000. If the disposal proceeds were more than £6,000, there is no restriction on the loss you can claim.
However, there are two main exemptions. You can’t claim a loss when you sell your private car (your private car falls out of the scope of CGT, also meaning you don’t pay CGT if you make a profit on it). Additionally, you can’t claim a loss if a chattel is considered a ‘wasting asset’ (see below).
Sets of chattels
There’s one rule that can easily trip you up. This applies to ‘sets’ of chattels. HMRC defines a set as being ‘similar and complementary to each other’ and ‘worth more together than separately’. This might include a set of chessmen or matching antique ornaments. In these cases, the £6,000 limit applies to the set, not individual items.
Wasting chattels
A wasting chattel is a chattel with a useful life not exceeding 50 years. Useful life is determined at the date of acquisition, having regard to the purpose for which the chattel was obtained. A chattel which is wasting will be exempt from capital gains tax and any losses on it will not be allowable.
So, if a taxpayer buys a racehorse or fine wine and later sells it at a profit, the gain will be exempt from capital gains tax because it is a gain on the sale of a wasting chattel.
HMRC regards assets such as clocks and watches, trains, boats and yachts as machinery. Plant and machinery is always treated as having a predictable life of less than 50 years and so will always be a wasting chattel. As a result, even machinery which is prone to increase in value will be exempt from capital gains tax.
There is one instance when wasting chattels are not exempt from capital gains tax. This is when the wasting chattel is used in trade and capital allowances have been claimed or could have been claimed on them. There would therefore be two potential tax liabilities arising from the sale of business machinery at a gain: the first as a balancing charge, and the second in the form of tax on the chargeable gain. Any tax allowable loss arising on the sale of business plant and machinery is reduced to take account of relief given by capital allowances.
Non-wasting chattels
A non-wasting chattel is tangible movable property with an expected life of more than 50 years. Examples of non-wasting chattels include fine art, antiques and jewellery.
For non-wasting chattels, the following rules apply:
Gains on non-wasting chattels when proceeds are lower than £6,000
S262 of Taxation of Chargeable Gains Act 1992 (TCGA) states that a gain accruing on a disposal of an asset which is tangible movable property shall not be a chargeable gain if the amount or value of the consideration for the disposal does not exceed £6,000.