Is my wife a chattel, for tax purposes?
Yes, it's true! Once a wife was treated as a chattel who could be sold in the marketplace for as much as £1.
The reason was that it was exorbitantly expensive to get a divorce many years ago and in the 19th century it could cost as much as £3,000 which would equate to about £20,000 now. In a loveless marriage, both parties probably wanted out but did not have the means to divorce by a private act of Parliament. Sir William Blackstone’s ‘Commentaries on the Laws of England’.
However, in some poor areas of the country, a wife was considered a chattel and could be sold or even bought like any other commodity. Some country marketplace customs meant locally the disaffected husband could take his wife to market and parade her to receive offers. It is thought that prices ranged from a few pence to as much as a £1. Thankfully, and rightly so this is no longer the case.
Nowadays we can sell our chattels on the open market and can even benefit from capital gains tax (CGT) exemption but not our wives.
Certain chattels when sold for a profit are exempt from CGT but must come within a certain category of chattel;
• Household furniture
• Paintings, antiques, china plates and silverware
• Motorcars, lorries and motorcycles
• Yachts, certain gold coins,
As an example if we take the sale of chattel items such as coins and a stamp collection which are both chattels and tangible moveable property. If each is sold for less than £6,000 no Capital Gains Tax arises.
If the proceeds exceed £6,000 either for a single item or a set e.g. stamp collection, the gain is actually restricted to five thirds of the excess over £6,000.
However, sets of chattels such as stamp collections and coin collections etc are treated as one item when sold and then the five-thirds rule applied. So how does one assess what is in a set? Valuers will assist in this regard such as a set of stamps of commemorative issues or coins that are of a certain reign or country. However, coin collections are treated as legal tender and exempt. But other coins like pre-decimal are monetised and are not exempt. The tax implications of some assets can be accessed by reference to;
• Chattels at manual CG76550P,
• Wasting assets CG76700P,
• Sterling coins and bank notes CG76881,
• Foreign currency CG78300P,
• Stamps CG76883.
Some chattels are also exempt from inheritance tax (IHT) as well but those mentioned above have to be taken into account in the IHT return.
For instance, UK bank accounts of non-domiciles with foreign currency, certain medals e.g. valour, heritage assets of ‘especial importance’ e.g. ming vase can be exempt from IHT as well. Some chattels can be given to others such as family and it is possible to keep the chattel in situ on licence by paying a fee of ideally 1% - 5% per annum. Specialist paperwork is required often with legal witnesses when assets are physically handed over only to be retained by the donee under licence.
This assumes that the licensee pays the insurance and has responsibility for repair and maintenance. Following a death HMRC does ask to see the papers going back seven years and, in particular, evidence of negotiation. The December 2009 Forum minutes state that: ‘Every case will be treated on its own merits, but if there is no meaningful rental market and the other advice set out in the minutes to the 2006 Forum is adhered to, then a rate of 1% is likely to be acceptable.
How any Tribunal might treat the costs of ownership remains undecided, but thus far no insurmountable problems have arisen as those costs are usually a very small percentage of the capital value. The further the net rental rate drops below 1% the more likely it is that HMRC will mount a challenge. Purely nominal rental rates will most certainly be challenged. HMRC will not raise frivolous enquiries’.
As is so often with tax this can be a complex issue, if you would like to discuss Inheritance tax or Capital Gains tax issues in more detail then please do not hesitate to contact the Tax Matters team.