Do I Need to Pay Capital Gains Tax on a Gifted Car or Jewellery

This guide explains whether you need to pay Capital Gains Tax when gifting a car or jewellery including the chattel rules, the £6,000 exemption, and CGT calculations.

Gifts can create unexpected tax questions. Many people in the UK pass on family heirlooms, jewellery, watches, ornaments, or even cars without realising that gifting an asset can create tax implications. Capital Gains Tax does not only apply when you sell something for profit. It can also apply when you give something away for free or at a discount because HMRC treats a gift as a disposal at market value. This confuses people especially when the item never produced any real income for them.

Cars, jewellery, art, collectibles, gold, watches, and other personal belongings all fall under the Capital Gains Tax rules but different categories are treated differently. In my opinion this is one of the most misunderstood parts of UK tax because the rules look simple but have important exceptions that make a huge difference. Some items are always exempt. Some are exempt only under specific conditions. Others can trigger tax if their value has risen significantly.

This guide explains whether you need to pay Capital Gains Tax when gifting a car or jewellery, how HMRC treats personal possessions, what counts as a disposal, what exemptions apply, how to calculate gains, and what records you must keep.

Do You Pay Capital Gains Tax on a Gifted Car

The simple answer

No. You do not pay Capital Gains Tax on a gifted car as long as the car is a private motor vehicle used for non business purposes. Cars for private use are fully exempt from Capital Gains Tax.

This exemption applies whether you:

  • Sell the car

  • Scrap the car

  • Donate the car

  • Gift the car to a family member

  • Transfer the car for below market value

If the car is a normal vehicle used for private use Capital Gains Tax never applies even if the car increases in value. That said almost all standard cars depreciate but some classic or collectible cars rise in value. The exemption still applies.

When a car might become taxable

A car only becomes potentially taxable if it is:

  • Used exclusively for business trading gains

  • Bought or restored with the intention of resale

  • Considered a business asset rather than a personal asset

This would be unusual for most people. For ordinary private car owners gifting a car has no CGT consequences at all.

In my opinion this is one of the easiest and clearest exemptions in UK tax law.

Do You Pay Capital Gains Tax on Gifted Jewellery

Jewellery is treated very differently from cars. Most jewellery is not automatically exempt from Capital Gains Tax. Jewellery is classed as a tangible moveable asset which brings it under the CGT rules.

However many pieces of jewellery fall within a special exemption for personal items called the chattel rules.

Understanding Chattels and the £6,000 Rule

Chattels are personal possessions that are:

  • Tangible

  • Moveable

  • Capable of being touched or moved

Jewellery, watches, antiques, collectibles, furniture, art, and ornaments all count.

HMRC gives a generous tax break for chattels. If an item is sold or gifted and its market value is £6,000 or less, it is exempt from Capital Gains Tax.

This exemption applies when:

  • You gift the jewellery

  • You sell it for less than £6,000

  • You sell it for more than £6,000 but you originally bought it for less than £6,000

  • You dispose of it for any reason and its market value does not exceed £6,000

For most people this means a lot of everyday jewellery is tax free when gifted.

What if Jewellery Is Worth More Than £6,000

If the jewellery is worth more than £6,000 at the time of disposal the chattel exemption might no longer apply. You may need to calculate a gain.

The process works like this:

  1. HMRC uses the market value of the jewellery on the date of the gift

  2. You compare that value to your original purchase price (or probate value if inherited)

  3. The difference is your gain

  4. You can use your Capital Gains Tax annual allowance (currently £3,000)

  5. If any gain remains after this allowance tax may be due

Example

You bought a diamond ring for £2,000 years ago.
Its current market value is £10,000.
The gain is £8,000.
First £3,000 is tax free due to the annual allowance.
Remaining £5,000 may be taxable.

Tax rates

If tax applies it is:

  • 10 percent for basic rate taxpayers

  • 20 percent for higher and additional rate taxpayers

The taxpayer is assessed after the gain is added to their income.

Special Rule: The Chattel Marginal Relief Formula

If the item is worth more than £6,000 but less than £15,000, you may qualify for a special calculation that reduces the gain.

The formula is:

5⁄3 × (disposal value minus £6,000)

This rule prevents people being unfairly taxed on moderate value possessions. It can reduce the tax burden significantly for items worth between £6,001 and £15,000.

What Counts as a Gift for Capital Gains Tax Purposes

A gift is a disposal under CGT. Even though no money changes hands HMRC treats the disposal as if you sold the item for its full market value.

This applies when gifting to:

  • Your children

  • Your spouse or partner

  • Your parents

  • Friends

  • Anyone else

Exception: Gifts to spouses or civil partners

These are fully exempt from Capital Gains Tax. If you gift jewellery to your spouse or civil partner no CGT applies regardless of value.

Transfers between married couples and civil partners are always “no gain no loss”.

Gifting to children or others

These are taxable events if the jewellery is worth more than £6,000 or if the gain exceeds your unused allowance.

Do You Pay CGT on Inherited Jewellery if You Then Gift It

When you inherit jewellery the probate value becomes your acquisition cost. If you later gift the item CGT applies only if the value has increased since probate.

Example
You inherit a ring valued at £5,000 on probate.
You gift it years later when it is still worth £5,000.
There is no gain so no tax.

If it has increased in value since inheritance you must calculate the gain based on the new market value.

Do You Pay CGT on Jewellery You Wear

Jewellery that is worn regularly still counts as a CGT asset. The fact that it is for personal use does not exempt it unless it falls under the £6,000 rule.

Exempt exception: Wasting assets

Items with a life of 50 years or less are exempt.
Jewellery lasts far longer than 50 years so wasting asset relief does not apply.

What About Watches

Watches follow the same chattel rules as jewellery:

  • Worth £6,000 or less: exempt

  • Worth more than £6,000: gain may be taxable

  • Gifting is treated as disposal at market value

This matters for luxury watches such as Rolex, AP, Patek, and Omega which may increase in value.

What About Gold and Precious Metals

Gold bullion, gold coins, and investment metals have their own rules.

  • Most gold bullion is subject to CGT

  • Some coins are exempt if classed as legal currency (sovereigns, some Britannias)

  • Jewellery made from gold follows the £6,000 chattel rule

What Records You Must Keep When Gifting Valuable Jewellery

If you gift jewellery valued above £6,000 you should keep:

  • Purchase receipts

  • Inheritance probate valuations

  • Professional valuations at the time of the gift

  • Any evidence of restoration or cleaning costs

  • Correspondence relating to the gift

These allow you to calculate your gain accurately if HMRC requests evidence.

What if You Receive the Gift (the donee)

The person who receives the gift does not pay Capital Gains Tax when they receive it.

However they will need to keep records because their acquisition cost becomes the market value at the date of the gift. If they later sell the item any future gain is calculated from that value.

Real UK Examples

Example 1: Gifted car

Rachel gives her nephew her old car.
Market value £4,000.
Private car used for personal use.
CGT outcome: always exempt.

Example 2: Gifted diamond earrings worth £4,500

Under the £6,000 chattel exemption the gift is tax free.

Example 3: Gifting a luxury watch worth £12,000

Bought originally for £7,000.
Gain is £5,000.
Annual allowance is £3,000.
£2,000 gain may be taxable.

Example 4: Gifting inherited jewellery

Probate value £3,500.
Current market value £9,000.
Gain is £5,500.
Annual allowance applies then CGT is due on remainder.

Example 5: Gifting jewellery to a spouse

Sarah gifts her husband a £20,000 ring.
No CGT due because it is between spouses.

Final Thoughts

Cars are always exempt from Capital Gains Tax when gifted for private use which makes them one of the simplest assets to handle. Jewellery is more complex because it falls under the chattel rules. Most everyday jewellery gifts will be fully exempt because they fall under the £6,000 exemption but high value pieces, luxury watches, gold items, and family heirlooms can trigger Capital Gains Tax if their market value has risen since you acquired them.

In my opinion anyone gifting jewellery valued above £6,000 should obtain a proper valuation, check their annual CGT allowance, and keep full records. Understanding the rules ensures you avoid unexpected tax bills and handle valuable gifts correctly.