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 think they are probably worth between £15,000 and £20,000.
Of course, I didn’t pay anything for them, but if I sold them, would I have to pay capital gains tax?
Thanks for any information you can give me.
Heather Rogers responds: Most people are well aware that they have to pay capital gains tax on the profit from the sale of property, such as a second home or stocks.
But capital gains tax is also due on the sale of personal property, usually referred to as “movable”.
The definition of personal property is something you can touch and move.
How capital gains tax works in relation to moveable property, including letters, is explained below.
However, a word of warning: I have no idea which rock musician wrote to you or what your letters contain, but remember that if you own the physical items, the contents belong to the author.
Although the author is deceased, the copyright does not and will pass to his heirs and assigns.
A deceased world famous rock star might have a powerful estate interested in the transaction you are considering.
I would therefore advise any client in your position to seek legal advice before a sale.
What is considered movable property?
How does the CGT work?
Capital gains tax is due on the profits from the sale of an asset – what you sell it for, minus what you paid.
Depending on assets, some relief may be available and each person receives a capital gains tax allowance, currently £12,300 a year, to offset their gains.
If an asset was transferred to you as a gift, the value at the time of the transfer will be the acquisition value.
When the asset is bequeathed to you by will, the probate value will be the value for which you are deemed to have acquired it.
You can deduct the costs of acquisition and disposal, if any – the fees of the real estate agent and the notary when selling, for example.
You can also deduct costs where you spent money and added value to the asset.
Movable property includes: furniture, paintings, antiques, china, brassware/silverware, games such as chess or mahjong, jewelry, books, manuscripts, letters , coins and stamps.
Some assets are classified as moveable property, but are exempt from capital gains tax. This is because they are “wasting assets”, those that have a lifespan of 50 years or less.
These generally include: motor vehicles (including classic vehicles), clocks and watches.
Letters do not fall into the category of “wasted goods”, nor do books or manuscripts, since they can be preserved for centuries if properly cared for.
The tax rules are different for movable property used for business, as opposed to personal property, but there is no need to go into detail here.
Do you have to declare the sale of your letters to HMRC?
You get a capital gains tax allowance, currently £12,300 a year (see box to the right).
Beyond that, you only need to report to HMRC any gain on the disposal of a single moveable property where the proceeds of disposal were over £6,000 and the moveable property is not exempt from CGT.
The sale 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 win depends on the amount:
– Sale proceeds.
– Real gain.
Your gain is usually the difference between what you paid for and what you sold.
See the gov.uk link below for how to calculate your win, including where the proceeds are over £15,000.
How can you calculate a gain when you haven’t bought a chattel, like a letter?
In these cases, market value is used. Here are some examples:
– It was a gift.
– You inherited it.
– You owned it before April 1982.
The gov.uk website explains how to calculate your win and what to do if you make a loss here.
Letters from a rock musician: They were ‘free’ when they were sent, so what’s the tax to pay if you resell them years later?
Can you deduct expenses from your winnings?
Expenses you can deduct include:
– Paid professional fees, such as for evaluation or advertising
– Costs you incurred to improve your possession (but not general repairs and maintenance)
– Purchase and sale costs.
What about items that are part of a set?
A set consists of elements which are:
– Similar and complementary to each other
– Worth more together than separately
– Items that are part of a set include: chess pieces; cutlery canteens, china sets, assorted ornaments/vases/bowls and books by the same author.
If you have a number of movables that form a set, the £6,000 limit that normally applies to a single movable will apply to the whole.
There are special rules that apply to sets that have been split and parts that are sold separately.
If the pieces 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 related – for example members of the same family – then the £6,000 limit applies to the whole, not to each bit of it sold individually.
However, if you sell parts of a set to different people, who are not connected, you will not pay tax on each part sold for less than £6,000.
What rules are likely to apply to your letters?
In your particular situation, the letters would most likely form a set because they were written by the same person, so the rules for sets would apply.
Also, since you say you’ve owned them since before 1982, you’ll need to use the link above to determine a market value figure to calculate your gain.
Ask a tax question to Heather Rogers
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 tax question, email her at firstname.lastname@example.org. Please put TAX ISSUE in the subject line.
Heather will do her best to respond to your message in an upcoming monthly column, but she won’t be able to reply to everyone or correspond privately with readers. Nothing in his answers 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 remain confidential and will not be used for marketing purposes.
If Heather is unable to answer your question, you can also contact MoneyHelper, a government-backed organization that provides free financial assistance to the public. He can be found here and his number is 0800 011 3797.
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