Tax officials have issued a clear warning to millions of people who sell unwanted items on online marketplaces like eBay and Vinted, explaining precisely when income tax or capital gains tax applies.
The guidance from HM Revenue and Customs (HMRC) came after a direct enquiry from a taxpayer, highlighting widespread confusion about the rules for casual online sales.
Income tax vs. capital gains: The key distinction
In the case examined, a taxpayer asked if they could offset a £3,000 loss from selling personal items, bought over five years, against their income tax bill. HMRC's response was unequivocal: losses from selling personal belongings cannot be deducted from income tax.
The agency stated that capital losses can generally only be used to offset capital gains, not income. This is a crucial distinction for anyone decluttering online.
Income tax is payable on earnings above the £12,570 personal allowance. The basic rate is 20% on income above this threshold, rising to 40% for income over £50,270. HMRC directed the individual to a specific tool on the Government website to check if they need to declare income from online sales.
When do you pay capital gains tax on sold items?
The taxpayer sought further clarity with a hypothetical example: buying a picture for £1,000 at a car boot sale and later selling it for £10,000. HMRC confirmed that such a gain would typically be subject to capital gains tax if the item is not exempt.
Most personal possessions worth £6,000 or less are exempt from capital gains tax. For items sold above that value threshold, CGT rules apply. If you sell an item for less than you paid, it creates a capital loss, but this can only offset other capital gains, not reduce your income tax bill. Losses on items that are exempt from CGT cannot be claimed at all.
What are the capital gains tax rates?
For the current tax year, if you are a basic-rate income taxpayer, the capital gains tax rate on gains from selling personal possessions above the £6,000 threshold is 18%.
For higher-rate or additional-rate taxpayers, the rate on such gains rises to 24%. HMRC has encouraged anyone with doubts to consult the detailed guidance available on the official Government website.
The clarification serves as an important reminder for the UK's growing army of online sellers to understand their tax obligations, ensuring they stay on the right side of the law while making money from their unused items.
