Selling Through Classified Adverts & Internet Auctions Sites
Q: For many years I have sold a number of old second hand items I own through classified adverts in my local newspaper, and I have recently started selling on internet auction sites. I saw an article in a magazine which suggested I may have to pay tax on the money I receive in this way. Is this correct?
A: If you are just selling some unwanted items that have been lying around in the attic and your home, the answer is probably no, as in order to pay tax on the goods you sell, you either have to be trading or make a capital gain.
You are likely to be treated as trading where the HMRC consider you to be purchasing or making goods for resale with the intention of making a profit, or sell goods for others and receive a commission.
If you only sell occasional, unwanted personal items through internet auctions, car boot sales and classified advertisements then it is unlikely they will view you as self-employed. This is due to the fact that in most cases the second hand value and amount you receive rarely exceeds the original price you paid for item, and as tax is only chargeable on the profits you make, no tax will be chargeable.
Capital Gains Tax is only charged on gains you make and if you sell an item for less than you purchased it for you will not make a gain. It is the gain that is taxed, not the amount you receive. Therefore, you will only have to pay tax if the items you sell have increased in value during the time you have owned them, and as they are likely to be personal effects or goods (known as ‘chattels’) you are selling, which are individually worth less than £6,000 when you dispose of them, it is very unlikely you will have made a gain.
If you are concerned that your situation may be considered to be trading you should discuss this with TaxAssist Accountants, as there is a late registration penalty if you do not register within 3 months of starting to trade.
Renting a Room
Q: I am thinking of renting out one of the rooms in my home. Would I have to declare this for tax purposes?
A: The short answer is yes. However, providing that the amount involved is less than £4,250 and you continue to live in the property whilst renting the room(s) out, you could claim Rent a Room relief.
This relief was introduced to encourage home owners to use surplus rooms and benefit by not paying tax. It is restricted to the letting of fully furnished rooms for residential purposes only and the property must be your main home.
Even though you will not pay tax if the rental income is less than the relief available, you should report the income on your tax return, and any excess above the £4,250 is taxable at your marginal rate.
Gift of Money To Purchase a Home
Q: A friend of mine will be receiving £50,000 from a family member to buy a flat. Can you explain the tax implications for my friend, and the person making the gift?
A: The gift of cash in this way does not have any income tax implication for the recipient. However you should make the family member aware of the Inheritance Tax (IHT) implications which apply. You can gift £3,000 per annum without any issue to IHT. In addition, the £3,000 allowance can be carried forward from a previous year if unused, making up to £6,000 IHT free.
The balance of the gift is called a potentially exempt transfer (PET). This means that if the donor dies within 7 years there may be tax payable by the donor’s estate. Tapering provisions apply so the longer the donor lives the less the potential tax.
The two extremes are that gifts made "on the death bed" are fully taxable, but gifts where the donor survives 7 years are not taxable. In addition, to the £3,000 per annum exemptions there are specific exemptions for normal expenditure out of income, gifts on occasion of marriage, small gifts, gifts to spouses and other specific gifts.
The rules are very complex and if you are the donor, you should seek specialist advice. The answer also assumes that the donee is not an executor or trustee of the donor's estate. If he is, specialist advice will be required as the answer will change.
Lloyd Stubbs specialises in managing tax and accountancy affairs for small business owners and can be contacted by phone or email
Disclaimer – advice shared in this column is intended to inform rather than advise and is based on legislation and practice at the time. Taxpayer’s circumstances do vary and if you feel that the information provided is beneficial it is important that you contact us before implementation. If you take, or do not take action as a result of reading this column, before receiving our written endorsement, we will accept no responsibility for any financial loss incurred.