Do I Need To Pay Capital Gains Tax on Bullion?
What is Capital Gains Tax and How Does it Apply to Bullion?
A term used to describe the tax paid on the profit acquired from the sale of an asset whose value has increased, Capital Gains Tax may either be expressed as long- or short-term capital gains tax. While the rates of former depend on your tax bracket and are applicable to gains from the sale of assets owned for over a year, the latter is taxed as ordinary income and is only applicable to the profits from the sale of assets held for a maximum of one year. Because taxes on capital gains are only initiated upon the sale of an asset, owning stock shares are considered to be relatively tax-free since, even though they may appreciate annually, they will only be taxed upon their sale.
That said, it is worth noting, however, that on the application of capital gains tax to bullion, the tax rates typically range from 0-20%, although these values will vary with the investment options. For instance, several bullion investments like gold and silver coins are capital gains tax (CGT) free for investors in the United Kingdom (UK). This is, however, only applicable to the gold and silver coins produced in the UK. As a result, it is common to see more investors investing in the CGT-free gold and silver coins than in gold and silver bars, which are not representative of legal tender and so not tax-free. The most famous examples of CGT-free coins in the UK include:
- The Royal Mint's Limited Edition Proof Sets
- The Royal Mint's Lunar series coins
- The Royal Mint's Queen's Beast series coins
- The Royal Mint's Two Dragons coin
- The Royal Mint's UK Britannia coins and Sovereigns, and
- The Royal Mint's Valiant coin.
However, because not all non-UK coins are legal currency in the UK, some are categorized as 'chargeable assets' in which case selling them within the UK, subjects any gains made to Capital Gains Tax. Some of the most popular coins subject to CGT in the UK include:
- The Austrian Mint's Philharmonic coins
- The People's Bank of China's Panda coins
- The Perth Mint's Kangaroo coins
- The Royal Canadian Mint's Maple Leaf coins
- The South African Mint's Krugerrand coins, and
- The United States Mint's Eagle coins.
As capital assets, ownership of precious metal bullion are subject to CGT. Despite the seemingly fixed rates set for the CGT, there exist several categories of assets that have capital-gains treatments different from the norm. Some of these categories include investment and owner-occupied real estate, and collectibles. Collectibles include all forms of antiques, arts, jewellery, precious metals, and stamp collections for which a maximum capital gains rate of 28% is charged.
Typically, the thought of a 28% tax is daunting at best and may occasionally put off investors from keeping bullion for over a year. Because the actual tax value paid depends on the duration of ownership of the precious metal (long- or short-term capital gains tax) and the payer’s ordinary income tax rate, there is no reason to be overly concerned about CGT when investing in bullions since few investors invest in large amounts. Nonetheless, in the event that you aim to, say maximize your bullion investment, the best approach is to sell smaller bullion quantities at a time; large enough to make a considerable amount of profit, but small enough to ensure that your profit falls below the limit set for that financial year, that way, you can avoid paying any CGT.