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income tax, CGT, chattel exemption or what?

income tax, CGT, chattel exemption or what?

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Sorry in advance for asking what is probably a simple question. Feeling a bit brain dead at the moment.

Client is a musician.

He has used instruments which have always been the subject to full FYA / 100% AIA claims.

He has now sold some of them.

Some of the assets have been sold for more than their original cost so proceeds are deducted from the b/f pool UP TO the original cost but what about the tax treatment of the excess sale proceeds?

For example, one instrument cost £14,500 some 7 years ago when the FA rate was 50%. Half the cost was claimed FYA with the balance going into to pool and deprecated by WDA along with other gear.

The disposal proceeds of this one instrument were £18,750.

Any thoughts much appreciated.

Thanks everyone.

Replies (9)

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By tonycourt
16th Jan 2014 11:01

Business chattels

Considering you say you're feeling brain dead you've answered your own question pretty well.

Step 1, is, as you say to add back the an amount to the CAs pool up to the original cost.

Step 2 is to apply CGT to the disposal and claim the appropriate reliefs or exemptions e.g. chattels relief. Note that where the proceeds exceed £15,000 chattels relief will not reduce the taxable gain. So in the case of your £18,750 disposal the usual CGT computation applies. For disposals below £15,000, just in case you can't remember, the formula for chattels relief is 5/3 x the proceeds in excess of £6,000 

For example:

Proceeds say           £13,000

Less cost say           £ 4,000

chargeable                 £9,000

Or with chattels relief:   

Proceeds                 £13,000

Excess over £6,000  £ 7,000

Chargeable 5/3        £11,666

So normal computation applies as it produces a lower gain

 

 

            

 

 

 

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By taxinfo
16th Jan 2014 19:06

thanks Tony

So, for this guy's musical instruments, the excess sale proceeds above the original asset cost has CGT applied, namely, chattel or "normal" computation.

Cheers.

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By mhtax
16th Jan 2014 19:11

? roll over

into new instruments? seem to be business assets and obviously not wasting assets.

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By Paul Soper
16th Jan 2014 22:55

Wasting asset exemption

Where an asset is mechanical - and most musical instruments are - they are deemed to be P&M and so deemed to be wasting assets even if they are not.  My oldest guitar was made in 1941 so 72 years old - a wasting asset?  Well yes because the sound is produced by mechanical means it is deemed to be a wasting asset.  Wasting assets are exempt from CGT UNLESS capital allowances were or could have been claimed in which case the excess is chargeable to CGT.  When Roll over relief comes into play it is possible to defer gains by up to 10 years, because the replacement is a wasting asset, or to roll over within that period into a non-wasting asset, studio perhaps? Or sell within 10 years and buy another instrument to replace that one.  But I don't want to sell my Gibson 1941 L47... so that's all right then.

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Replying to Paulsoper:
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By Simontax
21st Mar 2019 12:36

I have a musician client who has some valuable guitars but has never used them in his trade.

Does anybody know if the plant and machinery/wasting asset exemption applies if the assets were never used in the trade?

Many thanks in advance.

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Replying to Simontax:
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By tonycourt
22nd Mar 2019 13:16

Yes, wasting asset by reason of s.44 TCGA 1992.

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Replying to Simontax:
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By tonycourt
22nd Mar 2019 13:16

Yes, wasting asset by reason of s.44 TCGA 1992.

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By mhtax
17th Jan 2014 01:58

Thanks Paul

always something to learn - thats why we likw tax!!

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By Paul Soper
22nd Mar 2019 15:28

The wasting asset exemption only applies if capital allowances had not been claimed or, and this is the important bit, could not have been claimed but the provision also states that it must have been "used and used solely for the purposes of a trade, profession or vocation" to deny the relief - so if the instruments have ever been played for pleasure, rather than being locked in a bank vault, which some people do (!) then the exemption would still be available. Now, no-one wants to be the test case to prove whether this interpretation is correct so treat it as exempt BUT make full disclosure in the white box including s45(2)(a) and explanation that it has not been used at all as you also want to avoid (3)(a) where partial use for business purposes created a partial capital allowances entitlement... Lastly, is the client telling the truth - could there be some footage on Youtube or facebook etc which shows him using the instrument???

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