Heather Rogers: Find out how to ask her a tax question in the box below
I have letters and other handwritten items written to me in the 1960s by a world famous rock musician, who died young but still has a following.
Judging by online auction prices, I would think they are probably worth £15,000-£20,000.
Of course I paid nothing for them, but if I did sell them would I have to pay capital gains tax?
Thank you for any information you can give me.
Heather Rogers replies: Most people are well aware that they have to pay capital gains tax on the profit on the sale of an asset, such as a second home or shares.
But capital gains tax is also due on the sale of personal possessions, usually referred to as ‘chattels’.
The definition of a chattel is something you can touch and move.
The way in which capital gains tax works with regard to chattels, including letters, is explained below.
However, a word of caution: I have no idea which rock musician wrote to you or what is contained within your letters, but remember that whereas you own the physical items, the contents belong to the author.
Although the author has died, the copyright has not and will have passed to his or her heirs and beneficiaries.
A deceased world famous rock star might have a powerful estate that takes an interest in the transaction you are considering.
I would therefore advise any client in your position to get legal advice prior to a sale.
What is classed as a chattel?
How does CGT work?
Capital gains tax is payable on the profits from the sale of an asset – what you sell it for, less what you paid for it.
Depending on the asset there may be certain reliefs available and each person has a capital gains tax allowance, currently £12,300 each year, to offset against their gains.
If an asset was transferred to you as a gift, then the value at transfer will be the valuation for acquisition.
When the asset is left to you through a will, then the probate value will be the value you are deemed to have acquired it for.
You can deduct costs of acquisition and disposal if relevant – the estate agent’s and solicitor’s fees on sale, for example.
You can also deduct costs where you have spent money and have added value to the asset.
Chattels include: furniture, paintings, antiques, china, brassware/silverware, games such as chess-sets or mahjong sets, jewellery, books, manuscripts, letters, coins and stamps.
Certain assets are classed as chattels, yet are exempt from capital gains tax. This is because they are ‘wasting assets’, those with a lifespan of 50 years or less.
These generally include: motor vehicles (including classic vehicles), clocks and watches.
Letters don’t fall into the ‘wasting asset’ category, and nor do books or manuscripts, as they can be preserved for centuries if looked after properly.
The tax rules are different for chattels used for business, as opposed to personal possessions, but there is no need to get into that here.
Do you have to report the sale of your letters to HMRC?
You have a capital gains tax allowance, currently £12,300 each year (see the box on the right).
Beyond this, you only need to report to HMRC any gain on the disposal of a single chattel where the disposal proceeds were more than £6,000 and the chattel is not exempt from CGT.
The disposal proceeds will normally be the amount of money you received when you sold it.
If the proceeds exceed £6,000 but are less than £15,000, the amount of the gain depends on the amount of the:
– Disposal proceeds.
– Actual gain.
Your gain is usually the difference between what you paid for it and what you sold it for.
See the gov.uk link below for how to calculate your gain, including where the proceeds are more than £15,000.
How can you calculate a gain when you didn’t buy a chattel, such as a letter?
In these cases, the market value is used. Examples of this are:
– It was a gift.
– You inherited it.
– You owned it before April 1982.
The gov.uk website explains how to calculate your gain and what to do if you make a loss here.
Letters from a rock musician: They were ‘free’ when sent, so what tax is payable if you sell them years later?
Can you deduct any costs from your gain?
Costs you can deduct include:
– Professional fees paid, such as for valuation or advertising
– Costs you incurred improving your possession (but not general repair and maintenance)
– Purchase and sale costs.
What about items that are part of a set?
A set is items that are:
– Similar and complementary to each other
– Worth more together than separately
– Items which are part of a set include: chess pieces; canteens of cutlery, china sets, matching ornaments/vases/bowls, and books written by the same author.
If you dispose of a number of chattels that form a set, the £6,000 limit that normally applies to a single chattel applies to the set.
There are special rules that apply to sets which have been broken up and the pieces sold separately.
If the parts of the set were:
– Owned by you at the same time
– Sold by you to the same person, or a number of people acting together, or a number of people who are connected – for example, members of the same family – then the £6,000 limit applies to the whole set, not to each bit of it sold individually.
However, if you sell parts of a set to different people, who are not connected, then you won’t pay tax on each part sold for less than £6,000.
What rules are likely to apply to your letters?
In your particular circumstances, the letters would most likely form a set as they were written by the same person, so the rules for sets would apply.
Additionally, as you say that you have owned them since before 1982 you will need to use the link above to ascertain a market value figure to calculate your gain.
Ask Heather Rogers a tax question
Heather Rogers, founder and owner of Aston Accountancy, is our tax columnist. She is ready to answer your questions on any tax topic – tax codes, inheritance tax, income tax, capital gains tax, and much more.
If you would like to ask Heather a question about tax, email her at [email protected] Please put TAX QUESTION in the subject line.
Heather will do her best to reply to your message in a forthcoming monthly column, but she won’t be able to answer everyone or correspond privately with readers. Nothing in her replies constitutes regulated financial advice. Published questions are sometimes edited for brevity or other reasons.
Please include a daytime contact number with your message – this will be kept confidential and not used for marketing purposes.
If Heather is unable to answer your question, you can also contact MoneyHelper, a Government-backed organisation which gives free assistance on financial matters to the public. It can be found here and its number is 0800 011 3797.
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