Clocks not subject to capital gains tax in the UK?

Discussion in 'General Clock Discussions' started by NigelW, Nov 18, 2019.

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  1. NigelW

    NigelW Registered User

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    I have been wondering what the tax position would be if I bought a clock, restored it, and sold it on for a profit. If I was doing this frequently Her Majesty's Revenue & Customs would no doubt want to tax me as a business, but in general they don't like granting hobbyists business status because that means they can charge all kinds of expenses to create tax losses which they can offset against other types of income.

    If not a business transaction, selling a possession for a profit would normally be within the scope of capital gains tax, but it seems that clocks, even very old ones, are treated as "wasting assets" and are outside the scope. Good news then I guess. Downside is that if one makes a loss it can't be offset against anything.

    I am a retired accountant by the way, in case you think this on odd thing to be worrying about!
     
  2. novicetimekeeper

    novicetimekeeper Registered User

    Jul 26, 2015
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    Even better news, if you pop your clogs and probate is agreed at a low value then the beneficiaries to your estate will not have a liability for gain when they are subsequently sold at a higher price.
     
  3. Jim DuBois

    Jim DuBois Registered User
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    #3 Jim DuBois, Nov 18, 2019
    Last edited: Nov 18, 2019
    Selling a clock at a profit is almost a lost art hereabouts. It is a problem of the distant past for most of us. Stateside, functioning as a hobbyist Uncle Sam is happy to tax any profits reported, and there is no opportunity to claim any expenses or take losses against that profit. It sounds like the same dilemma you have. Running it as a business can be quite difficult, I have operated both as a business and as a hobbyist, but meeting all the hurdles as a business can be time-consuming under the best of circumstances.

    Some of the stateside auction houses are now generating IRS 1099 forms on the selling price of all items. That leaves it all as a taxable amount, no matter if it represents a gain, or a loss, and there is no opportunity to claim the original cost of purchase and deduct that amount from the reported "income." It then falls on the seller to take necessary steps with the IRS. In most cases, the seller will have to pay taxes on the entire selling price if he does not set himself up as a legitimate business per IRS rules and be able to substantiate his costs, expenses, and other overhead costs. And in order to be a legitimate business in the eyes of the IRS, you must generate a profit under their rules at least 1 of every 5 years. What fun huh?

    I know this is not directly to your question NigelW, different rules here, but this is an area that is getting quite ugly stateside and deserves illumination.

    Some additional comments from another source. Accurate? I have not researched it further.

    IRS guidelines state hobbyists sell items occasionally, not intending to make a profit from their activity. Hobbyists may deduct the expenses related to their hobby as miscellaneous itemized deductions, but not beyond the total revenue generated from the hobby. And, only the amount in excess of 2 percent of your adjusted gross income is deductible.
     
  4. Dick C

    Dick C Registered User

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    Is there a list available of which auction houses are generating the 1099 forms?

    This is important for some who are thinking about the selling of their collections.
     
  5. novicetimekeeper

    novicetimekeeper Registered User

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    The situation in the US sounds far worse than here. Here you can sell your possessions without incurring tax liabilities at all
     
  6. Jim DuBois

    Jim DuBois Registered User
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    #6 Jim DuBois, Nov 18, 2019
    Last edited: Nov 18, 2019
    There is a lot of miss-information out and about on the subject. I am not going to mention one auction house that did issue at least one 1099 on the gross amount of the sale of a large consignment. The consignor was not happy. There are other auction houses that have done so. A written agreement with an auction house should clarify if they do or don't.

    Following here are a recommendation and discussion from a large tax consultant firm. The last two bullet points pretty much sum it up I fear; the net is send it and let the consignor sort it out with the IRS. I suspect this would be more of an issue on large sales, sort of like winnings at a gambling house stateside? And it leaves Pandora's box in the open position.
    • While the 2010 Patient Protection and Affordable Care Act seemed to suggest the answer was, “Yes,” the Comprehensive 1099 Taxpayer Protection and Repayment of Exchange Subsidy Overpayments Act of 2011 seems to suggest, “No.” That is, if the answer was, “No” prior to the 2010 Patient Protection and Affordable Care Act.
    • Most tax professionals say that prior to 2010, auctioneers were not required to issue 1099’s to consignors, as in the case of personal property, the exemption for “merchandise” was clear. However, it is worth noting that the argument that the proceeds are actually coming from the buyers (and not the auctioneer) is less defensible as most auctioneers, at minimum, possess those funds at least temporarily.
    • Relatedly, a real property auction typically would involve the issuance of 1099’s if a real estate broker/salesperson/auctioneer was involved. More so in a real property transaction, the title company or escrow agent would issue 1099’s to all parties material to the transaction and if an auctioneer is an independent contractor with a broker, a 1099 would typically be issued by the broker.
    Lastly, two important aspects of 1099’s:
    • If the question is, “Should I send one out or not?” Send one. You won’t get penalized for issuing a 1099 report to someone who didn’t need one.
    • A 1099 itself doesn’t mean that taxes are owed. As we mentioned, the 1099 is an “information return,” and someone’s own tax circumstances dictate tax liability.
     

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