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Home » Buying Guide » Will Capital Gains Tax be Applicable on Your Gold Investment?

Will capital gains tax be applicable on your gold investment?

CGT (Capital Gains Tax) is a type of tax that will be applied on you when you make any type of profit or gain through offering, selling or disposing something. This tax is normally applied to specific assets that you may own and this includes shares, bullion, and real estate property. You can reduce the amount of Capital Gains Tax to be paid by availing tax free allowances and other additional reliefs associated with CGT. If you are a bullion investor then you will not be required to pay the Capital Gains Tax on the value and size of your investment but it is always helpful to know where you really stand.

Is there any Annual Tax Free Allowance on Gold Bullion?

The question is when do you need to actually pay Capital Gains Tax? You need to pay this tax only if your profit in the current financial year is over £10,600. One of the important things to understand here is that £10,600 refers only to the net income that has been created from the original outlay and should not be mistaken with the total worth of bullion as sold by you. Let's look at an example to understand this well. If you have brought £20,000 worth of gold bullion in 2010 and sold it for £30,600 in 2012 then you will not be liable to pay any Capital Gains Tax as your profit is the exact limit i.e., £10,600. So, as an investor you will be able to take advantage of the tax free allowance for the year 2012 but if you make any other profit or a higher profit from the same bullion then it will be taxable. For example: if you sold your bullion for £38,000 then your profit would be £18,000. In such a scenario, you will be liable to pay tax on £7,400. The tax rate varies from 18 percent to 28 percent and you can find the exact tax rate from HM Revenue & Customs website.  The rate of tax to be paid on profits made from selling gold bullion will depend on the amount of gains and taxable income.

The second important aspect that you need to understand is that your tax free allowance for £10,600 is valid only for 2012-2013 and will be reviewed annually. The tax free allowance for the next financial year, which is 2013-2014, will most probably have an increased limit. When you sell and make a profit, it will be your responsibility or that of your accountant to declare or disclose the amount of CGT payable.

What Type Of Bullion is Exempt from Capital Gains Tax?

Bullion traditionally refers to any tradable precious metal bars, coins or ingots. Precious metals include gold, silver, platinum and others although most often than not bullion is referred to gold. If you are planning to invest or have invested in bullion then you need to know that Capital Gains Tax is not applicable on all legal British currency. When we say currency, it refers to silver and gold Britannia coins in different sizes, all sizes of gold Sovereigns including Proof sets and one, two and five pound gold coins. The basic idea is that you can invest in British currency in gold and silver, in the form of coins, and of any size without having to worry about paying Capital Gains Tax on the profit derived from selling them.

In fact, gold sovereigns that were minted in the year 1837 as well as in the later years are quite the favourite among British investors because they are exempt from capital gains tax. The British Sovereign is also considered as a widely traded gold coin as compared to other gold currencies in the World. The weight of a full gold sovereign is 7.9g, while that of the half sovereign is 3.9g, and the quarter sovereign weighs 1.9g. All British gold sovereigns possess a fineness of .916 2/3 and are categorised under 22ct gold. They are minted at the Royal Mint in London or royally sanctioned Mints in India, Australia, South America, and Canada.

On the other hand, if you are investing in gold and silver coins in any other currency or if you are investing in silver and gold bars then you will be liable to pay Capital Gains Tax.

Best ways to save on Capital Gains Tax on Gold?

The best way to save from paying Capital Gains Tax on gold in the UK is by selling smaller quantities of gold bullion. As long as you sell gold bullion to make a profit that is less than your limit, which is £10,600 in the first financial year, you will avoid paying any CGT on gold. Basically, you need to sell your gold bullion over a period of several financial years. Let us look at an example to understand this well. If you have brought gold bullion worth £50,000 in 2007 and it is worth £85,000 this year (2013) then selling it will help you make a total profit of £35,000. You will then have to pay Capital Gains Tax on £24,400. On the other hand, if you sell a portion of your gold bullion, then you will be able to take advantage of the £10,600 tax free allowance in the current financial year. You can then sell another portion in the next financial year and enjoy the next year’s tax free allowance.

One important thing to remember is that in the next financial year, the worth of your remaining amount of gold bullion may also increase or decrease. If it increases then you will not be able to sell all the bullion and will have to again sell a part of it. This issue is normally associated with gold and not silver bars, as the prices of the latter don't appreciate substantially.

The bottom line is that if you are planning substantial investment in gold then investing in the British gold sovereign will be the optimum choice. Gold Britannia coin is exempt from Capital Gains Tax and has a higher tradable value as compared to silver coins and gold currencies of other countries of the world. Last but not the least, the longer you keep your Gold Britannia Coins, the higher will be the value!

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