Capital Gains Tax on Gold Bullion – Do I Pay This?
- Do I Pay Capital Gains Tax on Bullion?
- Tax Free Disposal of Sterling
- CGT Exempt Status on Some Gold Coins
- What is Capital Gains Tax ?
- How to Avoid Paying Capital Gains Tax
- Capital Gains Tax on Bullion
- Capital Gains Tax Exempt
- Sterling Area
- Isle of Man Angel - Example
- Capital Gains Tax Limits
- VAT on Gold
- HMRC and Gov.UK
- Update - May 2021
For UK residents, bullion coins which are UK legal tender pound sterling coins are exempt from capital gains tax (CGT). This is because these types of bullion coins are UK legal currency, so would not be 'chargeable assets' under current CGT rules.
Non-British bullion coins, and all bullion bars, are liable for CGT.
We have a wide range of CGT exempt bullion available to buy for those interested in taking advantage of this tax exemption.
Do I Pay Capital Gains Tax on Bullion?
The short answer is, it depends! This can be a complicated subject to discuss, but we will happily give you the benefit of our knowledge and the information that we have acquired over the years.
For most private investors, profits on investment gold would be dealt with under CGT (capital gains tax) rather than as income. If you buy CGT exempt coins you are not liable to pay any tax on them should you decide to sell (dispose of) them. However, not all coins and bars are exempt.
If you dispose of bullion which is not CGT exempt, you are required to pay tax on profits that exceed the annual capital gains tax allowance, which is currently £12,300 as of December 2020. This applies to bullion such as Krugerrands and gold bars.
However, many retail investors will not be liable to pay CGT as profits remain within their allowances, so would probably have no tax to pay. If you are investing large sums and are a UK resident, we highly recommend purchasing CGT exempt coins such as Britannias, sovereigns or Queen's Beast coins.
We should stress we are not accountants, tax experts or financial advisors, and you should consult further if you have more questions. More information can be found on the capital gains tax section of the HMRC website.
Tax Free Disposal of Sterling
Way back in the 1960s, we read that profits on disposals of sterling were exempt from CGT. Sovereigns, half sovereigns, and other British gold coins are legal tender sterling coins, and as such should qualify as exempt. Gold Britannias are also legal tender sterling, so they would also qualify for the same status. We were initially unsure that this exemption was still current, but have now ascertained that it is from this exchange in 2006, and it does strengthen the case for investing in gold sovereigns in preference to Krugerrands or gold bars. You can find the relevant passage from the HMRC manual here.
We have created this simple flowchart to illustrate whether a coin is exempt from CGT or not. Please note this is only applicable to British residents.
CGT Exempt Status on Some Gold Coins
In short, capital gains tax is the tax you pay on a profit made when you sell certain assets. Selling an asset is also called a "disposal". You will be subject to CGT on the following:
- most personal possessions worth £6,000 or more, apart from your car
- property that isn’t your main home
- your main home if you’ve let it out, used it for business or it’s very large
- shares that aren’t in an ISA or PEP
- business assets
- swapping investments
Disposals of United Kingdom currency (pounds sterling) are exempt from capital gains tax. As gold sovereigns, half sovereigns, and gold Britannias in all four sizes, are sterling, they are, or should be, treated as exempt from CGT.
All the following sterling coins are exempt from CGT:
- Sovereigns minted in 1837 and later years
- British Lunar Coins
- 50 Pence Coins
- Two Pound Coins
- Five Pound Coins
- Sovereign Coin Sets
- Britannia Coin Sets
Here are 2 popular CGT exempt products which you can buy straight from this page:
What is Capital Gains Tax ?
Firstly, let us explain what capital gains tax is.
The serious answer, as defined on the gov.uk website, is that:
“It is a tax on the profit when you sell (or ‘dispose of’) something (an ‘asset’) that’s increased in value. It is the gain you make that is taxed, not the amount of money you receive.”
The ‘not so serious answer’ is that it is an irritating tax that takes the joy out of making some money when you sell or transfer assets. Of course, when you sell, you may not always make a profit and even if you do, you may still not have to pay any capital gains tax (I did say it was complicated).
At this current time, capital gains tax is only payable if an investor realises over £12,300 profit from one financial tax year. This is only the profit and not the total sales value. For example, if in 2018 you buy gold coins worth £50,000 and sell them in 2020 for £62,300, you would only be required to pay tax on the £12,300 and not the total £62,300. Remember that you are allowed to make £12,300 profit, so this means if this were a single transaction you could walk away with £12,300 tax free. However, if you sold more bullion that year (or other investments subject to the tax) and realised more profit, this extra money would be taxable. Please refer to HMRC's website for the exact tax free allowance as it does get reviewed on an annual basis and these are the rates for 2020/21.
Again, we will make the point that we are not qualified accountants and are not financial advisers. If you believe you are likely to incur captial gains tax on an investment, please take professional advice before purchasing any bullion, or other investment for that matter!
How to Avoid Paying Capital Gains Tax
Avoiding tax is allowed, as opposed to tax evasion (which, of course, is illegal). We encourage our customers to do these two things:
1. Buy capital gains tax exempt coins which include:
2. If buying coins which are subject to capital gains tax we would suggest the following:
- When you sell or dispose of your coins ensure the profit you make falls within your yearly allowance. If you know you are going to fall into this bracket, as previously advised, take advantage of lower premium products.
- Think about part selling, for example, sell a portion of your investment in one financial year and a portion in another year.
- If you make a loss on the sale of assets this can be set against any gains before making a final calculation.
Capital Gains Tax on Bullion
Gov.uk advise that bullion is classed as a chattel. They state that for capital gains tax purposes a 'Chattel' is a chargeable asset and that bullion falls into this category. However what do HMRC/Direct Gov class as bullion?
Further research produces this information:
CG78305 – Foreign Currency
Coins are to be regarded as currency only if they are legal tender at the time of their acquisition or disposal. Coins which are currency but not sterling, for example Krugerrands, are chargeable assets.
Sovereigns minted in 1837 and later years and Britannia gold coins are currency but, like all sterling currency, are exempt because of TCGA92/S21 (1)(b).
CG76881 – Chattels: Coins and Bank Notes
Coins and bank notes which are sterling currency are not chargeable assets for CGT purposes, see CG12602.
Coins and bank notes which are currency of the issuing country are not treated as chattels. CG78300+ tell you about the treatment of currency.
A collection of coins or banknotes is unlikely to be regarded as a set. However, if it contains examples of all the values or denominations issued in one year or during one reign or government, these will, themselves, form a set.
This last link states that coins and bank notes of the issuing country are not treated as chattels – we were under the impression that Krugerrands were currency of the issuing country! Therefore, according to the definition above, Krugerrands would not be treated as a chattel. This is contrary to what gov.uk advise.
All of the above highlights how confusing the government websites are, especially HMRC's website, and is largely why some years ago we produced our own easy guide.
When we created this page on capital gains tax we were the only people who seemed to know anything about it, or had remembered about it. It was only some time after we published this page that The Royal Mint seemed to have discovered the same facts – presumably from our websites – as did almost all of our UK competitors. As usual, you can often read and discover it on our websites first, before everybody else copies it.
Capital Gains Tax Exempt
Britannia Face Value
“Currency in sterling is not an asset for capital gains purposes. It is the unit by reference to which capital gains are measured”
This is good news if you have decided to dispose of your sovereigns (post 1837) half sovereigns, Britannias and other British gold coins, including the British Lunar series. As these coins have a legal 'face value' denominated in pounds sterling, they should be treated as exempt from capital gains tax. You could dispose of these – make an unlimited profit – and this should not be counted as part of your tax allowance. This produces a great argument for investing in British coins.
Take, for example, the one ounce gold Britannia coin: it has a face value of £100. In theory, if gold were to drop below £100 per ounce, then at least your one ounce gold Britannia will still be worth £100!
The pound sterling currency is used officially by:
- The United Kingdom
- The Isle of Man
- The British Antarctic Territory
- Saint Helena, Ascension and Tristan da Cunha
- The Falkland Islands
- South Georgia and the South Sandwich Islands
- The British Indian Ocean Territory
This should, in theory, provide further coins which should be exempt from capital gains tax, however it is not as clear cut. Whilst the pound sterling can be used in all these territories, some of them issue their own local version of sterling coins and/or banknotes or officially have a separate currency pegged to the pound sterling. The majority of our competitors seem to focus on sovereigns and Britannias for this reason.
The sterling area was a group of countries, led by the United Kingdom, that either pegged their currencies to the pound sterling, or actually used sterling as their own currency. The sterling area arguably came to an end in 1972 when the British government unilaterally applied exchange controls to the other sterling area countries, in line with the UK's application to join the then European Economic Community. Today the 'sterling area' mainly refers to the currencies used by the UK, the Isle of Man, the Crown dependencies in the Channel Islands and the British Overseas Territories.
The Isle of Man, Jersey and Guernsey are permitted to issue their own local versions of the pound sterling in their respective territories. This arrangement is similar to Scottish and Northern Irish banks issuing their own banknotes denominated in sterling. As a result, Manx sterling, Jersey sterling and Guernsey sterling do not have separate ISO 4217 currency codes and are considered local issues of the pound sterling. This means any legal currency precious metal coins issued from these territories should be capital gains tax exempt.
The British Antarctic Territory, South Georgia and the South Sandwich Islands, the British Indian Ocean Territory and Tristan da Cunha all de jure use the British pound sterling. Tristan da Cunha occasionally issues commemorative coins, for which it has to seek permission from the British Secretary of State for Foreign & Commonwealth Affairs. These Tristan coins are pound sterling coins, so are exempt from capital gains tax. In the British Indian Ocean Territory, the US dollar is used de facto.
Rather confusingly, Gibraltar, the Falkland Islands and Saint Helena have separate currencies (all named after the 'pound') pegged to the pound sterling at par (1:1). These local currencies circulate alongside the pound sterling within the respective territory, but they are treated differently to the pound sterling by having their own ISO 4217 codes. This would imply that any precious metal coins issued in these local currencies would be liable for capital gains tax in the UK.
Isle of Man Angel - Example
Manx Gold Coins
The Isle of Man Angel, for example, is a bullion coin. These Manx Angels are pound sterling coins and their face value is equal to the current spot price of the metal content in the coin. As the official currency of the Isle of Man is sterling, you would deduce from this that the Angel would therefore be capital gains tax exempt.
The Isle of Man Cat has a face value of 1 crown, equivalent to 25 pence and the Isle of Man Sovereign has a face value of £1 sterling. These coins should all be capital gains tax exempt, however this may not be the case.
Capital Gains Tax Limits
This tax is only payable if an investor realizes over their tax free allowance for that particular tax year, currently £12,300. The size, type and value of their investment will determine whether they will have to pay any tax or not and at what rate.
As of December 2020, those who pay basic rate income tax pay capital gains tax at 10%, and higher rate taxpayers are charged capital gains tax at 20%. There are different rates for residential property which is not subject to private residence relief.
Remember, it is only the profit made from the original outlay that is taken into account, therefore most small investors never reach the capital gains tax threshold.
If this is you, take advantage of lower premium products which are not capital gains tax exempt:
- One Kilo Gold Bar
- 10 gram Gold Bars
- British Gold Pattern Sets
- One Ounce Gold Bullion Coins Our Choice
- One Ounce Gold Bullion Coins Minty Our Choice
However, bear in mind that it is your overall gains that are taken into consideration. This can include the profits made from sale of non exempt bullion, property (the house you occupy is generally exempt), shares, land, and antiques. For further clarification, it is always best to seek advice.
VAT on Gold
The reason we selected "Tax Free Gold" as the name of our legacy website was because, as from January 1st 2000, VAT was removed from "Investment Gold".
Previously all gold bars and gold coins had been subject to VAT, although there were special cases for antique coins, and VAT did not always apply to gold coins from the introduction of VAT in 1973, for a period they had been exempt.
HMRC and Gov.UK
In the process of writing this blog, I decided to do some research so that I could provide you with some relevant links. This proved to be quite an arduous task. The gov.uk website is confusing to say the least, it is extremely hard to navigate and contains an extensive amount of jargon. Finding information is made harder by the fact that half of the HMRC manuals have not yet been transferred over to gov.uk.
After searching the gov.uk and HMRC websites for clarification on one particular question, I gave up and submitted a form to gov.uk for some direction. I received the following answer:
“Many thanks for your email. However, I’m afraid I’m not able to answer your specific HMRC related query. The gov.uk support team does not have access to details held by HMRC. Please follow the link below to find the best way to contact HMRC directly with your query:”
I did as advised, and after another hour or so on the phone to HMRC, I was still no nearer resolving the issue.
We think Charles Dickens hit the nail on the head in his novel Little Dorrit, where he uses the term ‘Circumlocution Office’. Dickens uses it to describe and parody the government bureaucracy of the day.
Perhaps this is what HMRC stands for today, “Her Majesty’s Robbery and Circumlocution”?
Do you have any interesting four letter acronyms for HMRC?
Update - May 2021
We have been able to get in touch with HMRC but unfortunately, we are still none the wiser.
When speaking to one agent, we were led to believe that coins had to be both pound sterling AND UK legal tender in order to be exempt from CGT. This would mean that coins from Jersey, Isle of Man etc., would not be CGT-exempt because although they are pounds sterling coins, they are not classed as UK legal tender and are in actual fact, “foreign” coins.
Upon speaking to another agent, we were told that coins from Jersey, IoM etc. WOULD be CGT-exempt because they were pounds sterling.
It appears that much of what is written on the HMRC website is somewhat open to interpretation, to which HMRC have admitted. We eventually received a letter from them although this was not much clearer.
Our own research leads us to believe that for coins to be CGT-exempt, they would have to be both pounds sterling AND UK legal tender. Therefore, coins for Jersey, Guernsey and other British Overseas Territories are not exempt from exemption because although they are denominated in pouinds sterling, they are not UK legal tender.
Furthermore, the coinage act of 1971 gives provisions for coins made by the (Royal) Mint, granting them a monopoly on UK legal tender coinage. This would mean that coins issued by mints such as Pobjoy, Commonwealth etc. are NOT CGT-exempt as they are not granted the same monopoly status as the Royal Mint.
This does however lead us to some confusion as to coins issued before 1971 and those that were perhaps issued by private mints such as The Birmingham Mint owned by Ralph Heaton. For example, if such coins were demonetised at any point, they would no longer be classed as legal tender and therefore not be CGT-exempt.
We will continue to update this page as and when new information is made available to us, but we would recommend speaking with a financial advisor before making any major decisions.