Here at ATS Bullion, we frequently get asked questions about CGT and its relationship to gold. We usually get asked: What is capital gains tax? Is there capital gains tax on gold? Do I have to pay capital gains tax on gold? etcetera. So here is a quick guide to help explain what it is and the things you need to know about Capital Gains Tax and it's relationship to gold bullion.
This has been updated for the new 2019-2020 tax year.
Please note we are not tax advisors, so for more information please seek independent financial advice. This guide should be used as an aid only and a starting point to understanding Capital Gains Tax.
What is Capital Gains Tax (CGT)?
Capital Gains Tax is a personal tax on the profit when you sell (dispose) an asset. You are taxed on the gain you make, not on the total monies received.
So for example: Mr Bullion purchased an antique necklace at auction for £2,000 and Mr Bullion sold the item for £20,000 sometime later. The gain he has made is £20,000 minus £2,000 = £18,000. Therefore the gain of £18,000 would be subject to CGT.
What are the Capital Gains Tax Allowances for 2019/2020?
Thankfully, each investor has a tax-free allowance which gives some relief from Capital Gains Tax.
From April 6th 2019 to April 5th 2020 the tax relief is £12,000.
For Trusts the Capital Gains Tax Relief will be: £6,000
To see previous years allowances, please visit the Government's website - Capital Gains Tax Rates and Allowances
How do I work out my Capital Gains Tax (CGT)?
Your CGT will have to be reported to the HMRC. They will then work this out from what you have report and/or filled out from your tax return.
If you subscribe to the higher Income tax rate: You will pay 28% tax on the gain minus your tax relief.
If you subscribe to the basic rate Income tax: You will pay either 10% up to 28% depending on the size of the gain and the amount of income you receive. It will also depend on the asset.
For gold the basic rate income tax will be either 10% (if your income is below £37,500) or 20% (if the CGT amount takes you above the basic rate).
Let's continue from the example above and work out what tax Mr Bullion owes for both scenarios:
1) Higher Income Tax Rate
- Mr Bullion has a taxable income of £100,000 and total taxable gains of £18,000 (as above).
- From the gains, Mr Bullion deducts £12,000 (his tax relief) from the £18,000, leaving £6,000 to pay tax on.
- Mr Bullion is also considerably over the basic income tax band threshold of £37,500 (2019 to 2020 tax year) so he will have to pay 28% tax on £6,000.
His CGT liability is therefore £1,680.
2) Lower Income Tax Rate
- Mr Bullion has a taxable income of £20,000 and total taxable gains of £18,000 (as above).
- From the gains, Mr Bullion deducts £12,000 from the £18,000, leaving £6,000 to pay tax on. Mr Bullion has used £20,000 of the basic income tax band (up to £37,500 for 2019 to 2020 tax year) so he has £17,500 remaining within the basic tax band.
- Thankfully his gain of £6,000 falls within the basic income tax band, so he will have to pay 10% tax on £6,000.
His CGT liability is therefore £600.
Capital Gains Tax and Gold Bullion and Silver Bullion
Is there Capital Gains Tax on Gold & When do I have to pay Capital Gains Tax on Gold?
You will be liable to pay Capital Gains Tax on all physical investment gold and silver except on: One Ounce Gold Britannia coins & Gold Sovereign Coins. Of course you do have a £12,000 tax relief (tax year 2019 - 2020), so you may still be able to dispose of gold bullion such as 50g bars or Krugerrands and not incur Capital Gains Tax.
Visit a more in depth article on Britannia coins and Capital Gains Tax.
Why are Britannia Gold Coins and Sovereign Gold Coins CGT Free?
As British gold coins, they are given a sterling denomination and therefore are not chargeable for CGT purposes. This can be found under the HMRC manuals for more detail: currently listed as CG76881 - CG76881 - Chattels: coins and bank notes.
As mentioned at the start of the article, we are not tax advisors and we would always recommend you seek out independent tax advice. This guide is only meant to be used as an aid and an introduction to Capital Gains Tax.