CG76905 - Wasting assets: shotguns
The following text is reproduced from Tax Bulletin 45 published in February 2000:
THE CAPITAL GAINS TAX TREATMENT
We have received a number of enquiries recently about the capital gains tax treatment of pairs of shotguns and this article sets out our views on the point. It is written on the premise that any transactions by private individuals involving the acquisition and disposal of such guns are not regarded as “trading” or an “adventure in the nature of trade” within the charge to income tax under Case I of Schedule D.
It is common for items such as shotguns to be purchased and sold in pairs, generally matched according to their maker. This does not, in our view, mean that a pair of guns should be treated as the asset (singular) for capital gains tax purposes rather than as two separate assets. The guns may well have been bought and sold together but they are still separate assets and any computation should apportion the figures for the disposal consideration and the cost or 31 March 1982 market value as appropriate, between the two guns.
This distinction could be important where the overall consideration for a pair of guns is £12,000 or less so that each single gun would have realised less than the £6,000 exemption, TCGA 1992 s 262(1). Where in such circumstances a loss arose by reference to the original cost or market value of each gun, that loss would then be restricted using a deemed disposal figure of £6,000 for each gun, TCGA 1992 s 262(3).
We accept that this raises a further question which is whether the pair formed a “set”, TCGA 1992 s 262(4). Assuming that the requirement in that sub-section about the guns being sold to the same person would have been satisfied, that still leaves the question as to whether they would have been similar, complementary and worth more together than separately.
This will depend on the facts of the particular case but we would point out that while there is unlikely to be any doubt about the first two requirements given the nature of such sales, the third is likely to turn on the type of guns involved and whether these could be said to form a natural pair. While the limited number of cases we have seen suggest that this is likely to be the case where shotguns are concerned, there have been exceptions so the answer will turn on the facts of a particular disposal.
Assuming however that the “asset” was disposed of for more than £6,000, we then need to look at TCGA 1992 s 44 and the questions now become—
- is a gun, singular or plural, a “machine” or “machinery”, given that we do not distinguish between these terms in this context?
or, if not—
- did it have a predictable life not exceeding fifty years or less when it was acquired by the person making the disposal?
So far as question (1) is concerned, the word “machinery” is not defined for capital gains tax purposes so it must take its ordinary meaning. The Oxford English Dictionary defines a machine as—
“an apparatus for applying mechanical power, consisting of a number of interrelated parts, each having a definite function”.
In our article in Tax Bulletin Issue 13, October 1994, we set out our views on the various types of asset which we regard as “machinery” and those included antique clocks. However, in our view there has to be a subtle difference between clocks and shotguns. Once you have wound up a clock, it continues to tick more than once, whereas with a shotgun once you have pulled the trigger, you only get one discharge out of the barrel. That said, we accept that you then have to go on and consider what happens if you have an automatic weapon or machine gun which effectively fires continuously.
While we take the view that the matter is not free from doubt, we would generally accept the argument that all types of gun should be treated together under the general description of “machinery” so that they would have a predictable life of less than fifty years, TCGA 1992 s 44(1)(c).
In any event, assuming that these guns have been acquired for sporting or recreational purposes or by a farmer or gamekeeper as working guns, then the answer to question (ii) is, in our view, probably going to be that their predictable life by reference to the purpose for which they were acquired, TCGA 1992 s 44(1)(b), would not exceed fifty years.
It should however be borne in mind that, in the case of working guns particularly, where capital allowances had been or could have been claimed on the original acquisition cost of the gun, then any gain on its disposal would still be chargeable, TCGA 1992 s 45(2), notwithstanding its having a predictable life not exceeding fifty years.
Whether a particular chattel should be classed as “machinery” is very much a question of fact which can only be answered by looking at the state and nature of that chattel. Accordingly, we regret that it is not possible for us to issue a fully comprehensive list of those chattels which would, or would not, fall into this category. However, our capital gains tax manual looks at this and associated matters in the following paragraphs—
CG76870-76876—chattels generally, including antiques, militaria, medals & toys;
CG76880-76884—sets, including non-sterling coins and bank notes, stamps, books and magazines;
CG76900-76911—wasting assets, including clocks and watches, motor cars, locomotives and ships.
These paragraphs also set the general principles which we use to decide if a particular chattel was or was not an item of machinery.”