If I sell letters a famous rockstar sent me will I have to pay tax?

I have letters and other handwritten items written to me in the 1960s by a world famous rock musician, who died young but still has a following.

Judging by the prices of online auctions, I would think they are probably worth £15,000 – £20,000.

Sure, I didn’t pay anything for them, but if I sold them, would I have to pay capital gains tax?

Thanks for any information you can give me.

Heather Rogers replies: Most people are well aware that they have to pay capital gains tax on the gain from the sale of an asset, such as a second home or stock.

But capital gains tax is also payable on the sale of personal assets, commonly referred to as “chattels.”

The definition of movable property is something you can touch and move.

The following explains how the capital gains tax works with regard to movable property, including letters.

A word of caution: I have no idea which rock musician wrote to you or what’s in your letters, but remember that while you own the physical items, the content belongs to the author.

Although the author has passed away, the copyright has not and will not have passed to his or her heirs and beneficiaries.

A deceased world famous rock star may have a powerful legacy that has an interest in the transaction you are considering.

I would therefore advise any client in your position to seek legal advice before making a sale.

What is classified as movable property?

Chattels include: furniture, paintings, antiques, china, copper/silverware, games such as chess or mahjong sets, jewelry, books, manuscripts, letters, coins, and stamps.

Certain assets are classified as movable property but are exempt from capital gains tax. This is because they ‘waste assets’, those with a lifespan of 50 years or less.

These typically include: motor vehicles (including classic vehicles), clocks and watches.

Letters do not fall into the “waste of property” category, nor do books or manuscripts, as they can be preserved for centuries if properly maintained.

The tax rules are different for movable property used for business purposes as opposed to personal property, but need not go into that here.

Do you have to report the sale of your letters to HMRC?

You have a capital gains tax deduction, currently £12,300 per annum (see box on the right).

Further, you only need to report to HMRC any gain on the sale of a single movable property whose sale proceeds were over £6,000 and the movable property is not exempt from CGT.

The proceeds of the sale are normally the amount you received when you sold it.

If the proceeds are greater than £6,000 but less than £15,000, the amount of the profit depends on the amount of:

– Waste yield.

– Actual profit.

Your profit is usually the difference between what you paid for it and what you sold it for.

See the gov.uk link below for how to calculate your winnings, including when the proceeds are over £15,000.

How can you calculate a profit if you have not bought a movable property, such as a letter?

In these cases the market value is used. Examples of this are:

– It was a gift.

– You inherited it.

– You had it before April 1982.

The gov.uk website explains how to calculate your profit and what to do if you make a loss here.

Can you deduct any costs from your profit?

Expenses you can deduct include:

– Professional fees paid, such as for appraisal or advertising

– Costs you incurred to improve your property (but not general repair and maintenance)

– Purchase and sales costs.

What about items that are part of a set?

A set consists of items that:

– Similar and complementary to each other

– Worth more together than separately

– Items that make up a set include: chess pieces; canteens with cutlery, crockery, matching ornaments/vases/bowls and books by the same author.

If you have a number of movable property that makes up a set, the limit of £6,000 that normally applies to a single movable item will apply to the set.

There are special rules that apply to sets that have been taken apart and the pieces sold separately.

If the parts of the kit were:

– Simultaneously owned by you

– Sold by you to the same person, or a number of people trading together, or a number of people who are connected – for example members of the same family – then the £6,000 limit applies to the whole set, not each bit of it is sold separately .

However, if you sell parts of a set to several people who are not connected, you will not pay tax on any part sold for less than £6,000.

What rules are likely to apply to your letters?

In your particular circumstances, the letters would most likely form a set because they were written by the same person, so the rules for sets apply.

Additionally, since you say you’ve owned them since 1982, you’ll need to use the link above to determine a market value to calculate your profit.