Meg Saksida outlines when capital gains tax is due on eBay transactions, when income tax is due and when neither are relevant.
Capital gains tax (CGT) is charged when taxpayers make a gain on the disposal of a qualifying asset. The proceeds are compared with the historical cost and the result is a gain (or a loss if the proceeds are lower). The time value of money is ignored, and every taxpayer in the UK has a tax free annual exempt amount (AEA) of £12,300 (for 2022/23).
However, happily there are many types of assets that are commonly sold on eBay and other similar sites that are not qualifying assets, or for another reason are not chargeable to CGT.
Motor vehicles
Cars, motorbikes, vans, and other means of transport are not chargeable to CGT. This is for two reasons. The first is that motor vehicles have a specific mention in the legislation.
A ‘mechanically propelled road vehicle’ designed to carry passengers is not deemed to be a chargeable asset for CGT purposes.
Wasting chattels
The other reason that cars are not chargeable is that they would also fall into the exempt category of wasting chattels. ‘Chattels’ are tangible, moveable items. They must be capable of being lifted and moved without destroying their surroundings. For example, neither a house nor land are chattels, as they cannot be moved. A share or a lease can’t be touched. Antiques, stamp collections, clothing and accessories, toys, and furniture are all good examples of chattels.
A ‘wasting’ chattel is a chattel with a predictable life not exceeding 50 years. This is measured at the outset, so even though the grandfather clock is now 150 years old, it was not predicted at its production to last more than 50 years, so it is classified as wasting. This is true for all items with moving parts, so cars, clocks, plant and machinery, shotguns and boats will all be exempt under this category. All animals including livestock, horses and other pets will also fall into the wasting chattels exemption.
The £6,000 exemption
There is one final and very significant exemption. Where both the sales price of an asset and the purchase price are both equal to or under £6,000 there is no CGT.
This is significant because almost all the items that private householders in the UK sell through eBay fetch proceeds of under £6,000.
Summary
There are, it seems, very few eBay sales where the gain will be chargeable to CGT. Most sales are of small value chattels that are either wasting or are valued at £6,000 or under. If an eBay user does make a gain selling a more expensive asset such as a car or a horse, they too may be exempt under one of the other categories.
Even if a gain has been made on a more expensive item (i.e., over £6,000), if the cost was less than £6,000, the legislation restricts the gain to 5/3rds of the proceeds less £6,000.
Finally, if an expensive chargeable asset is sold making a large gain (e.g., a diamond ring is sold realising a gain of £10,000), although it will be chargeable, every taxpayer has their AEA to cover the gain. Married couples and civil partners have the added advantage of being able to split ownership of their assets and jointly sell the asset, thereby utilising two AEAs at once.
Practical tip
One-off sales will be as described above; but if a seller is trading, selling cars, furniture or other eBay common assets, they will then be liable to income tax on the profits, rather than CGT on the gains.
