Do I pay tax on my gold investments? 🤔
When it comes to gold, you’ll only need to pay tax when you sell – and only if your profit is over a certain amount. Having said that, it’s always good to know how much tax you would need to pay, how to pay and how to optimize your investments so you don’t pay more tax than you need to. We’ll be covering the basics of tax and gold below. 👇
When do you pay Capital Gains Tax?
The main tax you’ll want to be conscious of when buying your gold is Capital Gains Tax (CGT). CGT is a British tax that taxes you on any profit you make from your assets. It’s important to note that the tax is only on your profit, not on the total amount of your investments. That means that in order to pay CGT you would need to:
- Sell your gold
- Sell your gold at a higher price than when you bought it
Every year, the HMRC sets the threshold of CGT. In the financial year 2020/2021, the threshold is £12,300 – last year, it was £12,000. This threshold means that you only pay CGT if your profit is higher than £12,300, and only on the profit that goes over that amount. This “allowance” resets every financial year. Here’s an example to make it a little clearer. 👇
You bought gold several decades ago when the price was much lower (great choice! 🎉), and you’re now planning to sell. When you bought gold, you bought £12,000 worth of gold. Now you’re going to sell it for £27,000. That means you’ll gain a profit of £15,000. You won’t be taxed on the first £12,300 of that profit, but on the remaining £2,700, you’ll be taxed between 20-28%. The percentage you’ll be taxed depends on your current income tax bracket.
As you can see from the example, you need to make a pretty huge profit in order to start paying Capital Gains Tax.
How do you pay your CGT? You’ll need to declare your investments and earnings through your annual self-assessment on the Gov.uk website. The website will walk you through how to declare and pay any tax you owe.
The other tax to keep into account is Value Added Tax (VAT) – a tax that is added on imports into the country. The good news is that gold is exempt from VAT! This is not the case with other precious metals such as silver, where there’s an additional 20% VAT that merchants need to pay. This makes silver a little more expensive to buy and own (go gold!).
It’s unlikely you’ll be paying Capital Gains Tax if you’re only investing small amounts. However, if you are selling large amounts of gold when you retire or if you are selling gold in the same financial year that you’re selling a house or other large assets, you will need to keep CGT in mind and declare your profit. As always, we recommend you do your research and check out websites such as Gov.uk for more detailed information.
Can you lower your CGT tax bill?
If you are selling a house, investments or other assets and you want to sell your gold too, you will want to keep into account how much you’re paying in Capital Gains Tax. A good way to keep your taxes to a minimum is to sell your assets through the years, instead of all in one year. For example, you could sell £13,500 worth of your gold for a profit of £7,500 in one financial year and then wait till the next year to sell the rest.
Another way to lower your CGT tax bill is to invest in British gold coins such as Gold Britannia, Silver Britannia and Gold Sovereigns. Anything that is declared a British legal currency, such as gold coins, is exempt on CGT! Many investors buy large quantities of gold coins in order to take advantage of this tax exemption. Before doing this, however, make sure you understand the differences between buying gold coins and buying gold bars: gold coins usually have higher premiums and may be harder to store and insure.
Only British gold coins are exempt from CGT. That means that if you buy gold coins that are not British, such as the Krugerrand or American Eagle, you will still have to pay Capital Gains Tax on the profit.
Do I need to report my gold holdings?
The HMRC keeps on eye on investors who buy large amounts of gold in one go since this is a common method for money launderers to hide their money.
That’s why there are usually limits to how much you can order – if you’re buying more than £10,000 in one go, a gold dealer will usually ask you to provide ID to verify your information. At Minted, every one of our investors needs to verify their identity in order to open an account, so we don’t have a limit on orders.
The HMRC website states that if a dealer sells £10,000 worth of gold to one customer, they must notify the HMRC within 28 days. At Minted we keep records of all transactions and we would notify the HMRC if there is a large purchase of over £10k. However, we would not share the personal details of the buyer unless we are specifically requested to do so.
The only time you’ll ever need to report your gold investments is when you sell your gold for a profit larger than £12,300. If you’re selling a house or selling investments, you’ll want to make sure you keep this allowance into account so you declare any profit that is over the threshold. Remember that the allowance does increase every year, so make sure to check it before making any plans.
It’s never a bad thing to be educated on your tax obligations and requirements when it comes to investing and managing your gold. It’s highly likely you won’t need to worry about declaring gold investments or paying tax, but now you can rest assured that you know why. With this article, we hope you understand better how to handle tax and gold investments. If you have any additional questions, the HMRC website provides a tonne of information and you can even talk to one of their advisors for free!