Finance Act 1971 Section 29

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Finance Act 1971, Section 29: Capital Gains Tax and Chattels

Section 29 of the Finance Act 1971 (UK) is a crucial provision dealing with the treatment of capital gains tax (CGT) on the disposal of chattels. Chattels, in this context, generally refer to tangible movable property, such as artwork, antiques, jewelry, furniture, and similar items. The core principle of Section 29 is to provide a simplified method for calculating CGT liability on the disposal of chattels, primarily aiming to reduce administrative burdens for both taxpayers and HMRC.

The section introduces a specific rule known as the “deemed proceeds” or “alternative calculation” method. This rule applies when the consideration received for the disposal of a chattel is £6,000 or less. Instead of calculating the actual capital gain (sale proceeds minus cost), Section 29 allows the taxpayer to calculate the gain as if the sale proceeds were £6,000. This means the taxable gain is deemed to be £6,000 less the acquisition cost of the chattel. This provision is beneficial when the actual sale proceeds are only slightly above £6,000, as it can result in a significantly lower CGT liability.

Here’s how the alternative calculation works:

• If actual proceeds are £6,000 or less: The normal CGT rules apply (sale proceeds minus cost).
• If actual proceeds are more than £6,000: The taxpayer has a choice. They can either calculate the gain in the usual way (actual proceeds minus cost) or use the Section 29 deemed proceeds calculation.
• Deemed proceeds calculation: The gain is calculated as £6,000 minus the acquisition cost. If the acquisition cost is higher than £6,000, the gain is zero.

The rationale behind this provision is to avoid disproportionate administrative costs associated with accurately valuing and assessing gains on relatively low-value items. It also acknowledges that determining the original cost of items acquired long ago can be difficult.

It’s important to note that this alternative calculation is optional. The taxpayer can choose whichever method results in the lower CGT liability. If the actual proceeds significantly exceed £6,000 and the acquisition cost was low, the standard CGT calculation might be more advantageous.

Furthermore, Section 29 doesn’t apply to all chattels. It specifically excludes assets that are considered to be “wasting assets.” A wasting asset is an asset with a predictable life of less than 50 years. Common examples include plant and machinery. Therefore, gains arising from the disposal of wasting assets are generally exempt from CGT, regardless of the sale proceeds.

In summary, Section 29 of the Finance Act 1971 offers a simplified method for calculating CGT on the disposal of chattels where the proceeds are around the £6,000 mark. This provision aims to reduce administrative burdens and offers taxpayers a choice that can minimize their CGT liability. Taxpayers should carefully consider both the standard CGT calculation and the Section 29 alternative to determine the most beneficial approach for their specific circumstances, ensuring they understand the definition of “chattel” and the exclusion of “wasting assets.” Seeking professional tax advice is always recommended to navigate these rules effectively.

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