Get latest tax advice before putting family silver under the hammer

When you begin to feel the pinch, thoughts can turn to selling some of your assets or possessions to boost your finances. From property and cars to furniture and CDs, more households are putting a price on their possessions as the economic outlook continues to deteriorate.

But while a windfall could provide some much-needed financial breathing space, there could well be a sting in the tail as the taxman cracks down on undisclosed asset sales. Flush from a successful sale, many people have discovered only belatedly that once HM Revenue & Customs (HMRC) has taken its share, the payout can be eroded significantly.

One popular market for raising extra cash is heirlooms and antiques as Scots turn to clearing out their cupboards and dusting off the family silver in a bid to raise funds.

Growing interest in heritage artefacts and other collectibles has been driven to some extent by the popularity of TV programmes such as Antiques Roadshow, Bargain Hunt and Cash in the Attic.

There’s also the attraction of higher valuations, with Russian and Chinese treasures that have been passed down through families over the years now fetching record prices. Items made in China in the 18th and 19th centuries in particular, such as porcelain vases, are in huge demand in China’s domestic market, for example.

Yet only 3 per cent of Scots have sold art items or antiques to raise extra funds over the past year, according to recent YouGov research commissioned by the Royal Institution of Chartered Surveyors (Rics) Scotland.

It found that 5 per cent of retired Scots and 4 per cent of students in Scotland have sold arts or antiques to make money over the past 12 months, with jewellery, silver and coins recording the biggest price gains.

Angus Milner-Brown, arts and antiques expert at Rics Scotland, expressed surprise that more people weren’t taking this route to alleviate pressure on household finances.

“Selling arts and antiques is a great way for people to raise extra money and boost family finances, but it may not have occurred to some to try this option. I would encourage people to clear out their cupboards and seek a professional valuer registered with an organisation such as Rics to take a look,” said Milner-Brown.

“Now could be an excellent time to sell jewellery, silver, gold and coins. The Chinese market is currently especially strong, with porcelains, fine art and jade achieving world record prices.”

Helen Mackenzie, tax partner at Chiene & Tait Chartered Accountants in Edinburgh, agreed: “There are items that might not seem valuable and indeed may not have been particularly saleable in the past, which may now have special attraction for a foreign buyer,” she said.

While discovering a family heirloom or a long-forgotten trinket has real value can prove a financial boon, there’s a risk of being caught out by HMRC if you don’t do your tax homework.

You may have to pay particular attention to capital gains tax (CGT), depending on how much you make from your sale.

Gains under the annual exemption – frozen at £10,600 until April 2013 – are not liable to CGT. But CGT is charged on any gain over £10,600 at 18 per cent if you’re a basic rate taxpayer or 28 per cent above that.

Sean Cockburn, senior tax manager at Murray Beith Murray, said: “A private individual who sells something like a painting or a piece of antique furniture may well be liable for capital gains tax but this will be based on the ‘gain’ [the increase in value since taking possession], not the market value on disposal.”

If the gain from the sale is below £10,600 there will be no CGT due, even if the actual amount received is above that level.

“Be aware, however, that this is a ‘use it or lose it’ relief, which cannot be carried forward to cover gains made in the following or any future tax years,” said Cockburn. “But where a disposal can be split into two, it is common for one part to be sold either side of a tax year end to take advantage of two annual exemptions.”

You can mitigate your tax bill by gifting part of an asset to your spouse before selling it, because disposals between spouses are generally exempt from CGT.

“Combining the above two techniques can quickly lead to a four-fold multiple of the relief [£42,400] in one year becoming available to offset against gains,” said Cockburn.

However, he pointed out that you need to disclose any sale where the proceeds exceed four times the annual exemption, even where there is no liability to CGT.

The consequences of failing to plan for tax can be costly, especially when making a handsome profit from a sale.

Mackenzie at Chiene & Tait recently advised someone selling a valuable rhino horn that had been found gathering cobwebs in the back of a cupboard.

“This particular client found an antique carved rhinoceros horn cup which had been owned by his late grandfather and was not thought to be valuable. However, the horn was subsequently sold at a London auction house with a hammer price of more than £50,000.

“In this particular situation our client was aware that CGT would be due on the sale but we have experienced other situations where a tax bill has come as a nasty surprise.”

Mackenzie expects more people to take an interest in the value of their antiques and heirlooms, with demand growing from rich overseas investors for UK artefacts at a time when even owners of stately homes and large estates are feeling the financial squeeze.

“The responsibility which comes with generations of ownership runs incredibly deep and it may be that the sale of an heirloom is only considered with a great deal of reluctance,” she said.

But Mackenzie warned those tempted to cash in to remember that the big figures quoted will almost always have a hidden tax sting in the tail.

“The clear lesson here is that anyone contemplating the sale of a valuable asset should carefully consider the tax implications. Before rushing out to sell an item for thousands of pounds, independent advice should be sought to help limit the slice taken by the taxman.”