I would be highly surprised if the police took this any further.
The definition of theft is “the dishonest appropriation of property belonging to another with the intention of permanently depriving. He handed the watch over to you as a deposit for payment for the job that you were doing on the engine. It wasn’t a dishonest appropriation. It was given willingly. Further, he didn’t hand it over to you for safekeeping or as kind of security but as part payment. In that respect, you are entitled to sell the watch unless there was an agreement to the contrary whereby it was just some kind of security deposit.
I understand that it wasn’t a security deposit and that in effect he gave it to you as part payment but that doesn’t necessarily mean that he will not say otherwise. It would come down then to who the police believed but they would have to be certain of his version of events beyond all reasonable doubt and based upon the facts it would be impossible for them to bring a successful prosecution.
Because of the relatively low amount of money involved in the whole scale of things it would be normal for the interview to be carried out by local police at the request of Glasgow police because it is simply not worth the resource of sending officers to Wiltshire from Glasgow.
The police may make something of the fact that you hung onto the watch for a number of years before selling it however that would easily be answered by simply saying that you quite liked it and hung on to it before eventually deciding that you didn’t need it.
After all those years, you are entitled to sell the watch even if it’s held as a deposit and sell the engine to recover your costs BUT you have to give him notice that you are going to do that unless he either collect it and/or pays for it. This is the only bit that is problematical for you, because you had no contact details for him and it’s obviously impractical to hang onto things for ever on the off chance that he one day surfaces from the woodwork. After all, he could actually have been killed or died and you would never know and you would end up hanging onto these items indefinitely so at some stage practicality takes over and I think that you got to that stage. If it ever ends in court all you would need to do is prove that you have made all reasonable attempts to contact him.
If this is going to be any kind of legal matter at all I agree with you that it would be a civil court matter and not a criminal court matter and I think it unlikely that a judge would have any sympathy with him, in the civil court, if he expected you to hang onto things for 5 years.
Can I clarify anything for you?