Tuesday, 22 May 2012


There was controversy this week as an Olympic torch apparently sold on eBay for £153,100. The seller, Sarah Milner Simonds, told BBC Breakfast "it's not me to keep a shiny trophy on the mantelpiece when you can do something good with the money". She says she is going to give the money to a community gardening group. But she may end up with a very large tax bill as well. 

Any Olympic torchbearer who sells their torch may be liable for tax on the proceeds, even if they give the money to charity.

If the price fetched is more than £12,360 the torchbearer will have to pay Capital Gains Tax (CGT). If they give the money to charity through Gift Aid they may also have to pay some extra income tax depending on their own income and how much they give. 

Capital Gains Tax is due on the gain - which is the difference between the selling price and the cost of the item including any expenses of the sale. 

The cost of the Olympic torch is low to the torchbearer. Those who are sponsored by Coca Cola or Samsung can simply keep the torch - the sponsors pay for them. Other torchbearers who want their torch can buy it from the London 2012 organising committee (LOCOG) on the day of their run for £215. Some will have paid slightly less – £199 – if they bought the torch well in advance of the start of the relay. There is an extra charge for a stand. The uniform is free.

(Incidentally, the torches cost LOCOG £495 each which is almost £4 million for the 8000 that were made.)

If the torch is sold on eBay total fees are likely to be around £41.30. Some special promotions can reduce that cost or increase it slightly. If the item is listed initially as one from which the proceeds will all go to charity eBay will waive the fees. But giving all the proceeds to charity may not be a good idea.

The torch counts as a ‘chattel’ – a personal possession. No Capital Gains Tax (CGT) is due if the selling price is £6000 or less. If it is less than £15,000 then the gain is limited to 5/3 of the selling price above £6000. So if the sale was for £10,000 then the gain is (£10,000-£6000) x 5/3 = £6,667. On that amount no CGT would normally be due as everyone gets a CGT allowance of £10,600 this year. Effectively this means that a sale price of up to £12,360 is free of CGT because the gain would count as (£12,360-£6000)x5/3=£10,600 under the chattels rule. That is equal to the annual CGT allowance in 2012/13 and so no CGT would be due.

If the selling price is more than £12,360 then some CGT would be due. The tax is levied at two rates – 18% and 28% – on the excess above £10,600. The calculation is complex and depends on the individual’s taxable income.

If they pay higher rate tax on their income in 2012/13 then the whole of the gain above £10,600 is taxed at 28%. If their income is lower than that then the gain above £10,600 is put on top of their taxable income after the tax-free personal allowance has been deducted. The chunk between their income and the level of higher rate tax is taxed at 18%. The balance above that is taxed at 28%. On a gain of £100,000 the tax would be at least £21,595 if the individual had no other income and up to £25,032 if they did.

All these calculations assume the person has no other capital gains in the year.

Capital Gains Tax is collected through self-assessment. The individual has a duty to notify HMRC of a gain in this current tax year 2012/13 by 5 October 2013. HMRC would then send out a self-assessment form for 2012/13. The individual would need to fill the return it online by 31 January 2014, though that date can be extended if HMRC did not notify the need to fill one in until after 31 October 2013. Deadlines for paper forms are earlier.

Even if the proceeds of selling the torch are given to charity CGT will still have to be paid. Gift Aid has the effect of reducing the rate of CGT so all the gain is taxed at 18% rather than some of it at 28%. But it does not wipe out the CGT liability.

For example, someone with a gross taxable income of £30,000 who sold a torch for a net profit of £50,000 would normally pay £9784.50 in CGT. If they gave the proceeds of the sale to charity the CGT would be reduced to £7092. They could pay that by giving just £42,908 to the charity. The CGT charge would be the same which they could meet with the £7092 withheld from the proceeds. The charity will claim Gift Aid relief from HMRC so will get another £10,727 making a total of £53,635.

However, the Gift Aid relief can lead to an extra charge of income tax. A Gift Aid donor has to have paid at least as much tax as the relief claimed by the charity. The tax paid can be a combination of income tax and capital gains tax in the tax year the gift is made in. If the donor has not paid sufficient tax they must reimburse HMRC for the gift aid relief in excess of the tax they have paid.

So in some circumstances where income is low and the gift is large there could be extra tax to pay.

In the example above if the individual’s income was £20,000 rather than £30,000 and they retain £7092 to pay the CGT and make a gift of £42,908 the total tax they have paid is £7902 CGT and a further £2379 on their income of £20,000. That total is £9471. But the charity would reclaim £10,727 gift aid relief on the £42,908 donation and the £1256 difference between the two (£10,727 - £9471 = £1256) has to be paid in extra income tax. The charge could be avoided if the individual gave the charity £37,844. That would leave the proceeds of the torch as follows: to charity £37,884. To CGT £7092. And to self £5024. The charity then claims £9471 gift aid relief which is exactly the amount of tax the individual has paid. In total the charity gets £47,355.

Anyone who has sold a torch for more than £12,360 should see a qualified tax advisor or accountant whether or not they want to give some or all the proceeds of the torch to charity.

Anyone who is wondering if they would ever be caught should remember that  HMRC is already chasing more than 30,000 online sellers to get their tax sorted out and it monitors eBay and other online selling sites. It would be very easy for HMRC to identify everyone who sold an Olympic torch on eBay. And HMRC knows they were acquired for next to nothing.

Anyone who has not yet sold their torch but would like a charity to benefit can avoid all these problems by giving the torch itself to a registered charity and let the charity sell it. No CGT is then payable by the donor or the charity. Do not let the charity try to claim Gift Aid relief (an extra 25%) on the amount realised for the torch. That would involve the donor keeping ownership until the charity sold it on their behalf. The donor then gives the proceeds. So back to paragraph one.

To qualify for Gift Aid the organisation has to be a genuine charity. That is
  •  an organisation in England or Wales registered with the Charity Commission
  • an organisation in Scotland registered with the Office of the Scottish Charity Regulator  
  •  a Community Amateur Sports Club (CASC) registered with HMR
  • an organisation in the EU or Iceland or Norway accepted by HMRC as a charity for Gift Aid donations

If the organisation you want to give to is not a charity then Gift Aid is not possible. The CGT would usually be more. But you would of course be free to give the balance after tax to the organisation.

And what will Sarah Milner Simonds have to pay in tax if she gets her £153,100? Depending on her income and how much she gives to a registered charity her CGT bill will be between £25,000 and £40,000 CGT and she may have to pay some extra income tax as well.

My thanks to the two accountants, the Chartered Institute of Taxation, and HMRC who all helped me understand this arcane nonsense. Any errors are entirely mine. Do not rely on this article to make financial decisions – always seek professional advice from a qualified accountant or tax advisor first.

Tuesday, 8 May 2012


8 May 2012 BBC Radio 4, Today Programme 

Jim Rogers co-founder with George Soros of Quantum Fund 

“The banks are bankrupt, Spain is bankrupt somebody has got to put up money or we have to acknowledge reality and declare bankruptcy.

“Our problems in Europe and in the world are not over yet. ...even the austerity plans have debts still rising in every country in Europe. That is not solving the problem that is making the problem worse. So whether it is this month because of the Socialists in France or next month because of a new election in Greece or next year because of German elections these problems are going to come back until somebody accepts reality, realises that these people have spent more money than they have and figure out a way to resolve the problem - either go bankrupt or cut spending with a chainsaw.

“The debts continue to go higher, nobody’s debt is going down. If you don’t face reality now you can face it in 2014 or 2016 and at that point nobody’s going to put up any money and at that point the chaos is going to be much, much worse. Somewhere along the line you run out of other people’s money.

“[Electorates] have rejected it. Everybody wants a free lunch. Somebody’s got to face this eventually. Eleven governments have been replaced in the last few years in Europe by electorates that have said we don’t like what’s going on. I don’t like it either. But the facts are these, governments for 30 or 40 years have been spending money they didn’t have. But eventually somebody’s got to come up with the money and there is no money any more.”

Hear it here www.bbc.co.uk/iplayer/b006qj9z/console at 16 minutes in.

Thursday, 3 May 2012


Her Majesty's Revenue & Customs is fining 650,000 people £10 a day. The new daily penalties began this month for anyone who has to complete a 2010/11 tax return but hasn't yet filed it. The fines go on for up to 90 days - a possible £900 - and are on top of the automatic £100 penalty for anyone who filed their return online after 3 February.
It is a nice little earner for HMRC bringing in £6.5 million a day from 1 May to potentially 29 July.
But HMRC has admitted that 12,000 of those who have been told they are clocking up the penalties should never have been sent the letter. And I believe there may be many more who can get the penalties quashed.
In March the Revenue wrote to all 10 million in self-assessment to remind them to file next year's return. With the letter was a leaflet printed in big red type saying that some people could be taken out of self-assessment altogether. It listed eight questions - such as are you self-employed, is your income above £100,000, do you rent out property? If you could answer 'no' to all eight you were invited to call the self-assessment helpline and see if you could be taken out of self-assessment and have all fines cancelled.
Altogether 130,000 successfully took that opportunity. But the Revenue rather spoiled things by writing to 12,000 of them by mistake and saying they were liable to the £10 a day fine. It has now apologised and is writing back telling them not to worry.
Those 130,000 who escaped self-assessment were the lucky ones. Thousands of others tried to call the Revenue self-assessment helpline but gave up. Even now I am getting accounts of attempts to get through lasting an hour or more before failing. But it is worth persisting.
The Revenue has told me that anyone who should not be in self-assessment can be taken out and have all fines cancelled. And the only way to get that done is to call.
The number is 0845 900 0444, wait for the main menu, press 3 and then 1. Lines are open 0800-2000 Mon-Fri and 0800-1600 Saturday.
Here are the eight questions you must be able to answer 'no' to:-
1.  Were you self employed or a partner in a business any time in 2010/11?
2.  Were you a company director?
3.  Was your income £100,000 or more?
4.  Did you get more than £10,000 in savings or investment income?
5.  Did you get more than £2,500 in untaxed income?
6.  Did you rent out property
7.  Did you get foreign income liable to UK tax?
8.  Are you an employee claiming more than £2,500 in expenses or professional subscriptions?
In addition to those eight questions HMRC might have added
9.  Are you a minister of religion (any faith)?
10. Is your state pension bigger than your tax allowance?
11. Are you over 65 with an income above £22,900 in 2010/11?
12. Did you have Capital Gains Tax to pay?
'Yes' to any of those may scupper your chances too. But if you have what my Dad would have called 'a nap hand' of 'no' to all twelve then you should not have been told to fill in a tax return for 2010/11 and you can come out of self-assessment and get all penalties cancelled.
Even if you answer 'yes' to the odd question or two it is still worth trying. And definitely worth looking at HMRC's guide to who has to be in self assessment http://www.hmrc.gov.uk/SA/need-tax-return.htm. It has more detail than the lists above.
If you stay in self-assessment and do not file your return the fines are not over yet. The £10 a day penalty ends on 29 July. But then another £300 is charged on 1 August and another £300 on 1 February 2013. By then of course the 2011/12 return will be late as well! Interest - currently 3% pa - can be charged on late paid penalties.
Those fines apply even if you owe no tax. So make that call and hang on. Remember it is cheaper to call 0845 numbers from a landline than a mobile - they may even be included in your price plan. If you are abroad you can call +44 161 931 9070 with apparently much less delay and annoying verbiage than on the UK 0845 number.
If you owe tax then those £300 fines are the minimum. If the tax due is more than £6000 then you will be fined 5% of that amount instead.
In addition there are extra penalties added to the tax you owe - 5% is added on 1 March, 31 July, and 31 January 2013. And interest - currently 3% pa - is charged on all tax due and on the late filing fines. Phew!
So if you cannot come out of self-assessment get that return filed as soon as you can.
The dates given above are the standard dates. They can be later if you were not sent a form or told to file a return in April 2011. See http://www.hmrc.gov.uk/sa/deadlines-penalties.htm for full details.
If you have not filed your return but have a reasonable excuse for not doing so then you can be let off the penalties. More details here http://www.hmrc.gov.uk/online/excuse-missed-deadline.htm if you were serving overseas in the armed forces at the relevant date that can also be a reasonable excuse for being late.