A taxing issue
Volume 42, Number 2, February 2004
In these days of antique “roadshows”, fairs, car boot sales and Internet auctions it has never been easier to dispose of the unwanted items from our collections, never easier to trade up by selling that trio and plaque to help fund that eagerly sought after gallantry group. Unfortunately things are never as straight forward as they may seem and, as with anything concerning money, the taxman isn’t too far away. But are we liable for tax if we sell off those odd singles that have been languishing in our cabinets for years? And if we are under what rules? If we buy a WWII DFG group for £2500 and sell it for a £1000 more are we liable for capital gains tax and if we sell regularly on Ebay or Speedbid will we be seen as traders and thus liable for income tax? No-one wants to fall foul of the tax man but how can we avoid it? In an interesting article, recently published in Devon Life Magazine, Nigel Wollen, Partner in Hooper & Wollen, a firm of Torquay Solicitors, states that No Capital Gains Tax is payable if the consideration for the disposal of a chattel does not exceed £6,000.However he goes on to point out that there is a common misconception that the £6,000 limit refers to the gain but in fact it applies to the total consideration (i.e. the price) that is paid for the item concerned. In other words you are perfectly safe selling your MC group for £500 or even £1000 profit as long as the total you receive is under £6000; however if you manage to get your hands on an Victorian CGM group at £4500 and sell it on for £6500 you then find yourself liable for capital gains tax even though the actual profit was under £6000. For those of you thinking that “the sum of the whole is more than the sum of the parts” with, perhaps, a view to splitting groups and selling the medals to the same person but as individual pieces rather than a complete collection Mr Wollen states There are complex provisions that apply to the fairly obvious avoidance tactic of breaking down sets of items….into a larger number of single items. It seems that anything collectors might have though of the taxman has thought of first Interestingly though Mr Wollen has one piece of very good news for Medal collectors when he tells us that The disposal of Decorations for valour or gallantry which have been acquired otherwise than by purchase are exempt (from capital gains tax). The exemption applies not only to the winner of the decoration and his heir or donee but curiously also applies to the heir or donee of someone who purchased the decoration. In other words the winner of a decoration can, quite rightly, sell on that medal should he or she wish to without the fear of attracting the attention of the Inland Revenue; as indeed can their heir or indeed anyone they might have given that medal to. If however you simply bought the medal and were not awarded it or given it by the person to whom it was awarded you will attract CGT should you sell it on and the value of that sale exceeds £6,000. However most interestingly if you have in your possession a gallantry medal given to you (not sold to you) by someone who had originally purchased it (i.e had not been awarded or gifted it) then you may sell it on, regardless of the price, without being liable for capital gains tax. This obviously has huge implications in our hobby, after all who would willingly pay tax if he could avoid it? (not evade it we hasten to assure the tax office – we’d never condone that!). We won’t go as far as recommending how this might be used to the collectors’ advantage but we are certain such an exemption could be. Of course a gift itself is treated as a disposal for capital gains purposes and that must be taken into account. If you sell on a medal you were given you still won’t be liable for tax but the person who gave it to you would be – cutting out the loophole of just handing over your medals to a friend to sell! It is also important to point out that it isn’t only capital gains tax that collectors need to be aware of, particularly in this age of the internet when it is so easy to auction off bits and pieces. As Mr Wollen is keen to warn us we must be careful to ensure that the Inland Revenue will not treat you as carrying on a trade. If it does, your profit will be subject to Income Tax and not capital gains tax, and the exemptions referred to above will not apply. An individual (or for that matter a company or other institution) actively “ investing” in antiques must be careful not to fall into this trap. A number of factors need to be considered in assessing whether you are carrying on a trade including whether you are conducting repeated transactions or having work done on an item with a view to re-sale or if you have only owned the item for a short time The whole issue of tax is obviously a minefield and as Mr Wollen stated in a disclaimer to his original piece Readers should consult professional advisers before acting upon issues raised in this article. If you would like further advice please contact Nigel Wollen at Hooper & Wollen, 30 The Terrace, Torquay TQ1 1BS Telephone 01803 213251 or visit the website www.hooperwollen.co.uk
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