A couple of months ago, I pointed out that HMRC had gone on record as suggesting that Olympic torch relay runners who sold their torches (which they could purchase from LOCOG for £215) would be regarded by HMRC as generating a capital gain. I doubted the validity of that advice, initially on the basis that in my view the torches would be chattels that were wasting assets (i.e. they have a useful life not exceeding 50 years), and thus exempt from capital gains tax.
Since then the plot has thickened in two respects. Firstly, I am now informed that aluminium, the base metal from which the torches are made, does not have the same propensity to rust as, say, iron, and that it is thus likely that, properly cared for, the body of a torch is perfectly capable of surviving for 50 years. Thus, if bought as a souvenir or memento of the Olympics, or indeed the torch relay, it may be that a torch body is not in fact a wasting chattel.
This does not, however, mean that HMRC’s advice is necessarily correct. The next question to ask is whether the torch is a machine, as plant and machinery is always regarded for capital gains tax purposes as having a predictable life of less than 50 years.
I feel like I am on firmer ground here, as I saw the torch relay in Whitefield, Manchester (twice) and Old Trafford, including three handovers between torchbearers, so I have a reasonable idea of the workings of the torches. Apparently they have a burner mechanism which draws a mixture of liquid propane and butane from a canister , evaporates it through a heated coil and ignites it, producing heat and light. Think hot air balloon burner and you will get the basic idea. All that heat was the reason why the torch body was needed, to protect the user from the heat produced and the flame from the elements to ensure that it remained lit.
Policemen with special Allen keys were on hand at each exchange to turn on the gas supply to the burner, after which the torch was lit from the flame of the previous runner’s torch. That torch then had its gas supply turned off with the same key, the gas canister was removed and the tube between canister and burner was severed.
All of that sounds awfully like a machine to me; it converts liquid to gas and gas to heat for visual effect, and a key is used to turn on the gas supply to the burner mechanism, which evaporates and ignites the gas, forcing it out of the top of the torch by a process of gasification and expansion. The question that then arises is whether, once the torch is disabled, it remains a machine or becomes something different? I think it remains a machine, because the disablement process, involving as it does the turning off of the gas supply with a key, is both temporary and readily reversible, so the torch could fairly readily be made usable once again if so desired. There are many examples of machines that operate on a similar basis; a car perhaps being the most obvious example.
So my reasons may have changed, but I still think HMRC is talking rubbish when it says that CGT could arise on the sale of an Olympic torch.