5/3

System
System Posts: 100,534 🤖 Admin 🤖
edited 10:25AM in AAT student discussion
Hi, can anyone give me help explaining what 5/3 means relating to capital gains on chattels. I understand it is a resticting method or lower gains, but Im unsure what it actually means
cheers

Comments

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:5/3

    Hi

    The 5/3 Rule applies to chattels which are sold for more than £6,000, but cost less than £6,000.

    It works by restricing the gain to:
    5/3 X (Gross Proceeds - £6,000).

    For example, suppose you had a chattel which cost £4,000 and it was sold for £8,000. The gain would be calculated as follows:
    5/3 X £(8,000 - 6,000) = £3,333

    As this is lower than the cash gain (£8,000 - £4,000) then this would be the chargeable gain used in your computations.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:5/3

    Can I just comfirm, when you say 'cost' do you mean after indexation but before taper relief ?
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:5/3

    I think you may be thinking of 'Chargeable Gain' rather than 'Cost'.

    For the 5/3 rule you use cost, i.e. the amount the chattel was originally purchased for.

  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:5/3

    thanks :D
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:5/3

    :oops: Hi sorry but i have to ask what paper/unit does this relate to? I've never heard or seen any of the above and i am worried it's something i haven't learnt.
    Thanks
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:5/3

    It relates to the taxation modules.
  • System
    System Posts: 100,534 🤖 Admin 🤖
    Re:5/3

    Before you apply the 5/3 rule I think you should always first calculate the chargeable gain which is Proceeds less cost less indexation (if before April 1998)but before taper relief. This gives you a chargeable gain. Only then can you determine if the "5/3 (Proceeds minus £6000)" is less then the chargeable gain.
    If this is applied for business taxation there is no taper relief but not restriction date on the indexation.
    Good luck - this rule is very well described in the Osbourne books.
    Natascha

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