PTC - chattel rules

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swirlywirly
swirlywirly Registered Posts: 26 Regular contributor ⭐
This is doing my head in!! One of the special rules for chattels is:

Chattels sold at a gain for over £6,000 - gain restricted to 5/3 (proceeds - £6,000).

So that means the gains on any sale where the proceeds are over £6,000 are restricted. Am I right so far?

If that's the case then why on page 7.8 of the Osbourne book does this rule not apply in their answer for the antique painting?? It ticks all the boxes: chattel, sold at a gain for well over £6,000.

I know that if the rule was applied you'd get some ridiculously huge amount, and therefore the gain they show would be used anyway. But they don't even apply the rule to show that!

I can't figure it out and it's making me think that maybe I don't understand what the rule actually means.

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  • burg
    burg Registered, Moderator Posts: 1,441 mod
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    Can't help with the question in the book as I am qualified and don't have the book.

    However there are 3 rules to chattels:-

    Original cost and proceeds less than £6000 = wholly exempt
    Proceeds greater than £6000 = gain restricted to 5/3 x (gross proceeds - 6000)
    Original cost greater than £6000 proceeds less than £6000 = proceeds deemed to be £6000.

    The £6000 is based on proceeds and original cost as opposed to the gain.

    For the 5/3 rule you are struggling with.

    Lets take

    Original Cost £17500
    Proceeds £7500

    Proceeds 7500
    Cost 1750
    Gain 5750


    Limited to 5/3 x (proceeds - 6000)
    i.e. 5/3 x (7500 - 6000) = 2500

    Chargeable gain is lower of the two = 2500
    Regards,

    Burg
  • swirlywirly
    swirlywirly Registered Posts: 26 Regular contributor ⭐
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    Hi burg, thanks for your reply. I see that you wrote the second rule as:

    Original cost less than £6000 proceeds greater than £6000 = gain restricted to 5/3 x (gross proceeds - 6000)

    I didn't think "cost less than £6000" was one of the conditions too? One of the examples in the book is:

    Proceeds £9,000
    Cost £6,500
    Gain £2,500

    They do the calculation for the gain restriction, which comes out as £5,000 so it is obviously ignored. But they still did the calculation because it fell under the rule as they described it. Yet you say the rule is when cost is under £6,000??

    Oh dear, now I'm even more confused!!
  • Sally
    Sally Registered Posts: 69 Regular contributor ⭐
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    Am revising this myself - look on the HMRC website - check out "How to calculate capital gains and losses on personal possessions - Step 4: Work out the gain or loss so far, Personal possessions worth more than £6,000"


    I dont think i've heard the 'cost less than 6000' rule either but have been told to calculate marginal relief on any disposals with proceeds up to £15000 to see if the gain can be restricted. I gather its something to do with the fact that if you sell an asset for £6000 its exempt but for £6001 its assessable .....it makes it fairer for those disposing of assets for just over £6000.

    I have the osborne books but have also found discrepancies between Osborne and AAT in calculating ratios in DFS so i'm not a 100% confident in the info they provide.

    If i am totally wrong could someone please put me straight!
  • burg
    burg Registered, Moderator Posts: 1,441 mod
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    Sorry guys.

    There is no original cost part on the 5/3 rule. A mistype on my part.

    Now corrected above
    Regards,

    Burg
  • dobbieobby
    dobbieobby Registered Posts: 231 Dedicated contributor 🦉
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    So can I just check?

    I bought a painting in 2008 for £17000, sold it this year for £20000
    Proceeds 20000
    Costs 17000
    GAIN 3000

    I bought a painting in 2008 for £8000, sold it this year for £6000
    Proceeds £6000
    Cost £8000
    LOSS (2000)

    I bought a painting in 2008 for £5000, sold it this year for £3000
    IGNORE as under £6000.

    I bought a painting in 2008 for £3000, sold it this year for £20000
    Proceeds £20000
    Costs £3000
    Therefore 20000 - 6000 * 5 / 3 = £23333.

    Am I right so far please?? REALLY dont think I am!!
  • Brownie3
    Brownie3 Registered Posts: 45 Regular contributor ⭐
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    Bought for £3k
    Sold for £20k

    The lower of

    1. 3k less 20k - 17k

    or

    2. 6k (deemed cost) - 20k x 5 divide by 3 = £23334

    So you would actually select £17k
  • dobbieobby
    dobbieobby Registered Posts: 231 Dedicated contributor 🦉
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    Oh god, I'll never get these...
  • Brownie3
    Brownie3 Registered Posts: 45 Regular contributor ⭐
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    You will, easier than Jordan :-)
  • Brownie3
    Brownie3 Registered Posts: 45 Regular contributor ⭐
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    The idea is to try and be fair with the seller

    i.e. if you bought for 1k and sold for £5999, it's exempt

    However, if you bought for 1k, and sold for £6001, it wouldn't be fair for the gain to be £5001

    So the deemed cost is 6k. i.e. lower of £5001 or 6000 - 6001 x 5 / 3 = £1.67

    Extreme example I know, but trying to explain it to highlight why the either/or thing is needed
  • Sally
    Sally Registered Posts: 69 Regular contributor ⭐
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    burg wrote: »
    Sorry guys.

    There is no original cost part on the 5/3 rule. A mistype on my part.

    Now corrected above



    I am so confused now... think the 'the cost less than £6000' rule may apply? have just read an article on the page where the PTC past papers are held "changes to tax exams in 2009" and one example says:-

    "proceeds 15000
    cost 9000
    gain 6000

    Note that the 5/3 rule does not apply as both proceeds and cost are above 6000"

    Has anyone got a definitive answer re marginal relief?
  • Brownie3
    Brownie3 Registered Posts: 45 Regular contributor ⭐
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    There are 4 scenarios

    1. Buy and sell for less than 6k - exempt
    2. Buy and sell for more than 6k - normal Calculation, i.e. Buy for 9k, sell for 15k = Liability of 6k
    3. Buy for over 6k, sell for less than 6k, deemed proceeds of 6k, i.e. Buy for 9k, sell for 3k, deemed proceeds of 6k less selling price of 3k = (3k)
    4. Buy for less than 6k, sell for more than 6k - i.e. Buy for 3k, Sell for 9k = LOWER OF 3k - 9k = 6k

    OR

    Deemed proceeds of 6k - 9k = 3k x 5/3 = 5k

    So you would take 5k as this is the lower figure.
  • jonny@ashmole.biz
    jonny@ashmole.biz Registered Posts: 2 New contributor 🐸
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    best solution of all ^^
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