Kind Advice Required regarding sale of a personal digital asset

Calculator1000

Hello everybody.  

Apologies if this is being posted to a wrong section of the forum, first time poster here.

I have been on UC for a couple of years now and also claim carers allowance for caring after my mother.  I have a question in relation to the sale of a digital personal asset to a international friend living in Dubai.  I have worked for 25 + years in the chemical industry and have chemical formulations which this person is intersted in buying off of me.

The sum in question is for 3000 Gbp which would be paid as a direct transfer into my bank account once he is in receipt of the digital formulation.  I have checked with a financial advisor and capital gains tax would not be an issue as it is does not surpass the threshold allowance for the 2024-2025 tax year.  

It should also not affect carers allowance as the sum broken down would not pass the allowed weekly earnings threshold for the year.  As far as I know the sum would also not push me over my yearly tax exempt allowance of 12574 Gbp either.

As far as I can tell, the only issue I can potentially see would be with universal credit.  I am unsure how this would be affected or if I have to report it in anyway should I go through with the sale.

The amount is small enough that I would only proceed with the sale if it does not affect or impact things in any significant way.  It would simply not be worth having to register for self assessment, possible Vat or to take a financial hit in any way from deductions to UC not to mention a real hassle for such a small amount which I am doing as more of a courtesy than anything else.  I certainly do not want to land in hot water or have to fight the powers that be over such an amount.

There is very little information online that I can find when it comes to the sale of a personal digital asset to somebody internationally and how it would affect things. 

A moderator  on another forum has advised me the following but confirmation would be great.

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Selling personal items is not treated as earnings. It will be treated as capital. If your total capital is less than £6,000 after that sale then there’s no affect on your UC.

For Carers allowance, it’s not treated as earned income.

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Is there anybody knowledgeable who could advise and confirm?  Highly appreciated, thanks.

Devongardener

I’m not sure that this is personal asset, as you are essentially trading knowledge as a commercial transaction.
Do you own the intellectual property rights to the formula?

tacpot12

Sorry, I don't have any experience of the situation you describe, but I wonder if the DWP might suggest that your intellectual capital should have been declared sooner. The Advice to Decision Makers about Capital owned by claimants of Universal credit is that business assets that are used by the client in the business they are engaged in are disregarded permanently, but if the person ceases to be in business and no longer needs the assets, their value can only be disregarded for six months. (You have to sell them within six months).  

If these are business assets from a period of self-employment, then they might expect you to have sold them sooner. You have various 'defences' against such a suggestion, e.g. you didn't realise that they had any value until you were approached by your friend or that you developed the formulations not as part of a business, but for personal recreation (Note that if the formulations had been licensed to someone else previously, or you had mixed up batches of product based on the formulations and sold some product, then these forumulations would seem to be a business asset). 

Even if the capital should have been declared sooner, the fact that the value of the assets was so uncertain until a buyer was found, it seems impossible for you to have known how much capital you had. I think I would focus on this point if you go ahead with the sale. 

Your existing savings might also come into play here. If £3000 takes you over the £16,000 of capital you are allowed to have while claiming UC, then there is more risk. If you have less than £3000 of savings, then suddenly finding an asset that is worth £3000 still doesn't change the amount of UC your were entitled to. Between £6000 and £16000 of total assets, you would still be eligible for UC, but might have been overpaid it. 

I do think that this situation is SO unusual that who ever the decision maker is they will not have had to make a decision on this before, so you have some latitude to paint the picture as you want it to be seen. You will need to declare your amount of savings if receipt of the proceeds of sale take you over £6,000, but you can just say that you didn't realise that the asset you sold had a value until someone approached you out of the blue.

One final throught: is there a risk that your intellectual propertuy might worth alot more than £3000? If you were to licence the formulations to your friend in Dubai, and also licence them in other countries, would this make them so valuable that you wouldn't need to claim Universal Credit? 

huckster

It is not a personal asset. It is a form of self employed earnings.

Best course of action would be to clarify with HMRC how they would treat one off earnings like these. What is the correct legal position.  You might have to self report this to form part of earnings for the relevant tax year.

And when you receive one off payment to declare to the various benefits.

Calculator1000

Many thanks for your replies everyone.  I do own the intellectual rights to the formulations from my previous business which closed several years ago.  From that point on these formulations essentially became worth nothing more than the paper they were written on (digitally speaking) or at least so I thought and have just been sitting on my hdd ever since.  I mean who would pay money up front for formulations that were untried and untested    How could I ever have put a value on something that has never happened before and may never happen again?

I did check with my previous accountants and were advised that if the ownership of said formulations was transferred along with the sale it would fall under the capital gains pervue as I am doing nothing but selling the information and ownership of said formulations.   Surely such a act would only be categorised as earnings if I were to continuously make income from them?

I agree with tacpot12 however that it is surely an area that is definitely unusual.  Thanks everyone, I will give it more thought.

huckster

Clarify with HMRC as advised. Accountants don't always advise correct info.

sheramber

I think the payment would be royalties which HMRC class as miscellaneous income ( not earnings) which is  taxable  income along with any other taxable income.
While royalties are normally ongoing payments, they can be a one off payment. 

As such the payment would be counted as income for carer’s  allowance. 

DullGreyGuy

Arent royalties normally from selling a licence for the right to use the information whereas it appears the OP is selling the ownership itself which traditionally wouldn't be considered royalties. 

sheramber

DullGreyGuy said:

Arent royalties normally from selling a licence for the right to use the information whereas it appears the OP is selling the ownership itself which traditionally wouldn't be considered royalties. 

Generally yes, but they can be a  lump sum payment.

https://www.gov.uk/hmrc-internal-manuals/international-manual/intm342530

Calculator1000

sheramber said:

I think the payment would be royalties which HMRC class as miscellaneous income ( not earnings) which is  taxable  income along with any other taxable income.
While royalties are normally ongoing payments, they can be a one off payment. 

As such the payment would be counted as income for carer’s  allowance. 

Royalties are usually ongoing income recieved and relating to a secondary entity (or third) selling and making profit from the original person, persons or companies intellectual property.  In this particular case there is no ongoing contract or commitment.  It is simply one person who owns formulations in a particular field of chemistry, and another person who is interested in acquiring said formulations.   If I sell a said formulation (which is owned by me) with all rights of ownership transferring to the buyer after the sale completes, I fail to see how this would NOT fall under capital gains tax purvue. It is a simple singular transaction where one asset is sold and ownership is transferred to another.  I also fail to see how this could be classed as earning income.  

A very difficult situation to be in and one where I do not wish to rock the boat in any one direction.

Yamor

I basically agree with @sheramber.

This would normally be taxed as income from IP (s.579 ITTOIA), or possibly as income from the disposal of "know-how" (s.583 ITTOIA). It could only be taxed as a capital gain if it was sold as part of the sale of a trade.

As such, it is "unearned income" for UC, and would reduce your UC £-for-£ in the AP in which you receive the money, but would not affect your award on an ongoing basis.

For Carer's Allowance, it counts as income, and would mean you lose entitlement for up to 19 weeks (£3000/151.01). However, you should be back on UC for most of that time, in which case the loss of the Carer's Allowance wouldn't actually affect you that much.