You may have heard of the term 'Capital Gains Tax' but you might not quite understand how it relates to your precious metal investments. This article looks to explores CGT in more detail.
What is Capital Gains Tax?
Capital Gains Tax is the tax investors need to pay on the profit for selling an asset that's increased in value. The gain (profit) investors make from this sale is then potentially taxable. Don't get this confused, the tax isn't calculated on the full value of the sale, only on the profit made from it.
When does CGT Apply?
Before worrying about the level of tax that will apply, investors first need to investigate if any CGT is due at all. If gains across all investments equates to less than the allowance (e.g. £12,000 tax year 2019/2020), you won’t have any to pay. If it's over this, you'll have to work out how much you need to pay.
The rate of CGT you'll need to pay is dependant on the tax band into which the gain falls into when it's added to other taxable income. After deducting the tax-free amount from your earnings, add the taxable gain to the figure for income earned in that tax year. If this figure is below the personal allowance band (up to £12,500), you'll pay nothing on the gains. Within the basic rate tax band (£12,501 to £50,000), you'll pay 10% tax on the gain and over this, you'd pay 20%.
The rate of capital gains tax for bullion investment gains will only be either; nothing, 10%, and 20%. However, different types of investments have different rates of capital gains tax. For example, CGT paid on residential property is even higher (currently 18% and 28% according to the band).
To calculate how much CGT investors need to pay:
- Add up the gains from all assets disposed of in that financial year
- If you're over the annual allowance, you may wish to apply losses from that, or, previous years to offset the gains and reduce your tax liability
- Work out the tax rate to apply to the gain. If your income plus taxable gain is within the basic rate band, it will be the lower rate for that portion of the gain. Anything over the basic rate is payable at the higher rate.
- Add this amount to your taxable income
What Bullion is CGT-Free?
If you're an investor in the UK, most gold and silver coins produced in the UK are legal UK tender and exempt from Capital Gains Tax. This means that you can make an unlimited tax-free profit on investments of any size and value on any legal UK currency coins.
This is not the case with gold and silver bars. Gold and silver bars have no denomination value, and even if purchased in the UK, are not representative of legal tender. This makes bullion bars subject to CGT, something which investors need to be aware of when declaring any payable Capital Gains Tax under HMRC's Self Assessment.
Examples of popular CGT-Free coins in the UK:
- The Royal Mint's UK Sovereigns
- The Royal Mint's UK Britannia coins
- The Royal Mint's Queen's Beast series coins
- The Royal Mint's Lunar series coins
- The Royal Mint's Valiant coin
- The Royal Mint's Two Dragons coin
- The Royal Mint's Limited Edition Proof Sets
EXAMPLE: An investor buys 2000 x UK silver Britannia coins for £2.37 each in August 1991, and sells them for £14.52 each on March 2017. The total profit received from this would be £24,300. The investor would need to pay no capital gains tax, therefore, because UK gold and silver coins are CGT-free.
What Bullion is subject to CGT?
All non-UK coins are not legal currency in the UK and are therefore classed as 'chargeable assets'. This means that if investors sold them in the UK, the profit would be subject to Capital Gains Tax and would need to be declared. If you are the resident of another country then you may be best placed to purchase coins from there. Particularly if they are ultimately to be sold in that country.
Examples of coins subject to Capital Gains Tax in the UK:
- The South African Mint's Krugerrand coins
- The Royal Canadian Mint's Maple Leaf coins
- The People's Bank of China's Panda coins
- The Austrian Mint's Philharmoniker coins
- The Perth Mint's Kangaroo coins
- The United States Mint's Eagle coins
If you're looking to avoid paying CGT, we'd suggest browsing our UK Gold and UK Silver coins offers. We recommend all readers to do their research before making any purchases but if you'd like to speak to a member of the team, please call 01769 618 618, or email us at [email protected]