PTC  chattel rules
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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.
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.
0
Comments

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 = 2500Regards,
Burg0 
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!!0 
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!0 
Sorry guys.
There is no original cost part on the 5/3 rule. A mistype on my part.
Now corrected aboveRegards,
Burg0 
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!!0 
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 £17k0 
Oh god, I'll never get these...0

You will, easier than Jordan :)0

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 needed0 
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?0 
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.0 
best solution of all ^^0
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