I possess letters and other handwritten artifacts written to me in the 1960s by a world-famous rock musician who passed away at a young age but continues to have a fan base.
Based on online auction prices, I estimate their value to be between £15,000 and £20,000.
I paid nothing for them, but would I be required to pay capital gains tax if I sold them?
I appreciate any information you may provide.
The majority of individuals are aware that they must pay capital gains tax on the profit made from the sale of an asset, such as a second home or stocks.
However, capital gains tax is also required on the sale of personal property, commonly known as “chattels.”
A chattel is defined as something that can be touched and moved.
Below is an explanation of how the capital gains tax applies to personal property, such as letters.
However, a word of caution: I do not know which rock musician wrote to you or what is contained in your letters, so keep in mind that while you own the physical goods, the author owns the contents.
Although the author has passed away, his or her heirs and beneficiaries have acquired the copyright.
A deceased, world-famous rock singer may have a formidable estate that is interested in the proposed transaction.
Therefore, I would encourage any client in your position to seek legal counsel before proceeding with a sale.
What constitutes a chattel?
Furniture, paintings, antiquities, porcelain, brassware/silverware, games such as chess or mahjong sets, jewelry, books, manuscripts, letters, coins, and stamps are examples of personal property.
Certain personal property assets are exempt from capital gains tax. This is because they are “wasting assets” with a lifespan of fewer than 50 years.
Typically, these include automobiles (particularly historic automobiles), clocks, and watches.
Letters, books, and manuscripts are not considered “wasting assets” because they can be retained for centuries if cared for properly.
Different tax regulations apply to personal vs business-related personal property, but there is no need to discuss that here.
Are you need to notify HMRC of the sale of your letters?
Your annual capital gains tax exemption is presently £12,300. (see the box on the right).
Beyond this threshold, you are only required to declare to HMRC any gain on the sale of a single non-exempt chattel if the sale proceeds exceed £6,000 and the chattel is not exempt from CGT.
Typically, the disposal proceeds consist of the amount of money you received when you sold the asset.
If the revenues are greater than £6,000 but less than £15,000, the amount of the gain depends on:
- Disposal profits.
- Actual benefit.
Your profit is often the difference between your purchase price and the selling price.
Refer to the website provided by gov. The UK for information on how to calculate your gain, including where the revenues exceed £15,000.
How do you measure a profit when you did not purchase a tangible item, such as a letter?
In these instances, market value is utilized. Examples of such include:
It was a present.
You have inherited it.
- You were the owner before April 1982.
Here, the gov.UK website describes how to determine your profit and what to do if you incur a loss.
Can you deduct expenses from your revenue?
Among the allowable deductions are:
- Fees paid to professionals, such as for valuation or advertising
- Costs you incurred to improve your property (but not general repair and maintenance)
- Purchase and selling expenses.
What about goods included in a set?
A set comprises the following:
- Comparable and complementing one another
- More valuable collectively than separately
- Examples of items that are part of a set are chess pieces, canteens of cutlery, china sets, ornaments/vases/bowls that match, and novels authored by the same author.
The £6,000 limit that typically applies to a single chattel applies to the set if you dispose of multiple chattels that comprise a set.
There are unique regulations that apply to sets whose pieces have been separated and sold individually.
If the set’s components were:
- Owned by you concurrently
- Sold by you to the same person, or a group of individuals acting together, or a group of connected people – for example, members of the same family – then the £6,000 limit applies to the entire set, and not to each piece sold separately.
However, if you sell separate components of a set to unrelated individuals, you will not be taxed on the sale of each item for less than £6,000.
What restrictions will likely apply to your correspondence?
As the letters were likely authored by the same individual, the criteria for sets would apply to your specific situation.
In addition, given you’ve said that you’ve had them since before 1982, you will need to use the URL provided above to calculate your gain.
