Tax on collectables: Understanding tax rates, exemptions and more

This recently came up in conversation at RouseFinerva when Ryan, from our Finance Office team, brought in his collection of collectible Pokémon cards.

What started as a chat about hobbies and collecting soon turned into a wider discussion: what happens when you sell a collectible for a profit — and what are the tax implications?

 
From trading cards and coins to art, fine wines, antiques, watches, jewellery and classic cars, the tax treatment isn’t always straightforward.

In this article, our tax advisor, Morgan Cotton explores the key tax considerations and answers some of the most common questions around owning and selling collectibles.

Collectibles are assets too

Over the past few years, things that were once seen as hobbies have become genuine assets. Trading cards are a good example. What started as a childhood pastime is now a market where individual cards can change hands for thousands of pounds. When something you own grows in value and you sell it, HMRC may take an interest.

For tax purposes, most collectibles fall into a category called chattels, which simply means tangible, movable possessions. Think art, antiques, jewellery, and yes, trading cards.

The £6,000 rule

Here is the part that surprises people. If you sell a single item for £6,000 or less, any gain is usually free from capital gains tax. This is known as the chattels exemption, and importantly it looks at the sale price, not your profit. Therefore, if you bought something for very little and sold it for £5,000, the whole gain typically escapes tax.

Selling for more

If a single item sells for between £6,000 and £15,000, a special relief limits the taxable gain rather than taxing all of it. The chargeable gain is capped at five thirds of the amount above £6,000, which softens the jump for items just over the threshold.

Sell for more than £15,000 and the normal capital gains rules apply. Depending on your income, gains above your annual allowance are currently taxed at 18% or 24%. It is worth remembering that the annual exempt amount has fallen sharply in recent years, to £3,000 for the current tax year, so more gains fall into charge than used to be the case.

Hobby or trade?

There is one more distinction that catches people out. Everything above assumes you are selling personal possessions. If you are regularly buying and selling, HMRC may decide you are running a trade rather than disposing of a collection. That changes the picture entirely, because trading profits are subject to income tax, not capital gains tax. Where the line sits depends on how often you buy and sell, your intentions and the wider pattern of activity.

Are classic cars subject to Capital Gains Tax?

Classic cars can benefit from different Capital Gains Tax treatment from other types of collectables. Cars are generally considered to be ‘wasting assets’ for tax purposes, meaning that gains on their sale are usually exempt from Capital Gains Tax. However, there are exceptions, so the specific circumstances of the vehicle and its use should be considered. If you are buying or selling a classic car as an investment, it is worth taking professional tax advice before assuming any gain will be tax-free.

This article is general information based on the rules for the current tax year and does not constitute advice. Tax treatment depends on your individual circumstances and may change. Please seek professional advice before acting.