Do I have to pay taxes when I sell a painting? Gareth Shaw

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Here you enter the world of capital gains tax – the tax you pay when you make a certain profit on an item you have sold. Capital gains tax doesn’t apply to all assets, but I’ve talked about it a lot in the pages of this column over the years – mostly when it comes to stocks and property.

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Each individual gets a capital tax deduction – an amount of profit they can make when they sell an asset that remains untaxed. Image: AdobeStock

For example, furniture, paintings, antiques, tableware and china, collectors’ sets, bookshelves, or matching ornaments are all subject to capital gains tax.

But then items such as private cars are exempt (unless they are used for commercial purposes), and HMRC considers “wasted assets” – items with an expected lifespan of less than 50 years. – are also exempt.

This can include items such as trailers or wine, although some fine wines can be stored for very long periods of time, which could make them taxable.

Another important thing to remember is that every individual gets a capital tax deduction – an amount of profit they can make when they sell an asset that remains untaxed.

In the current 2021-22 fiscal year, this stands at £ 12,300. You will pay tax on anything over this amount.

This is where the capital gains tax on property deviates slightly from conventional assets.

Your item will only be subject to tax if you sell it for more than £ 6,000. Sales below this amount are not taxable.

The rate you pay will depend on your marginal tax rate – if you are a base rate taxpayer, you will pay 10 percent capital gains tax; if you are a higher rate or additional rate taxpayer, you will pay 20 percent.

However, if your item’s selling price is between £ 6,000 and £ 15,000, you’ll come across a weird rule.

You will pay tax on the actual gain you made or on 5/3 (or 1.667) of what you sold it for, less £ 6,000.

It’s a bit of a puzzle. You can choose the lower one and pay tax on that amount.

It’s probably worth browsing through an example of this, as your expected selling price seems close to that amount.

Let’s say you sold your painting for £ 15,000 and originally bought it for £ 5,000. That leaves you with £ 10,000 in profit. Alternatively, using the 5/3 method, you would multiply £ 9,000 (your sale price of £ 15,000 minus £ 6,000) by 1.667, which makes £ 15,000. So calculating your capital gains tax the standard way would make the most sense.

You can further reduce your bill by deducting expenses, such as appraisal and marketing costs.

You can report capital gains to HMRC through the government’s Report Capital Gains Tax online service.

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