Working out if you're liable for Capital Gains Tax
Capital Gains Tax (CGT) becomes payable on profit you make when you sell, give away or otherwise dispose of assets worth more than £12,300 in one financial year. This is the level set by the government at the time of writing; the CGT threshold is reviewed annually.
If your profit is less than £12,300, then you are within your CGT allowance and won't be liable for the tax. £12,300 may seem like a fairly high level, but if you're selling assets such as property, art or gold bullion, it can be all too easy to exceed the CGT threshold.
Remember, CGT applies to the current financial year but is based on any profit you make on the original price you paid, whenever you purchased the assets. If you bought some bullion, say, five years ago and have seen it steadily increase in value, you might find that the profit you make when you sell it has used up a large proportion of your annual CGT allowance. Any further sales you make in the same year could tip you over the £12,300 threshold, resulting in you being taxed at 20% – 28%. The actual rate depends on the assets sold, but nevertheless it represents a sizeable dent in your profits.
Please note there are some other reliefs from CGT available. As we are unable to provide specific financial advice or your situation, we recommend you check with your accountant. We keep records of all transactions with the Britannia Coin Company for seven years, but do not voluntarily forward any details to HMRC unless specifically requested to do so.
Capital Gains Tax on gold bars
Gold bars are available in a range of sizes and therefore they make attractive investment propositions with flexible buying and selling options. However, whilst you won't pay VAT on transactions involving gold bars, as investment gold is currently exempt, you will be liable for CGT.
Will I pay CGT on gold coins?
Fortunately, you can buy certain gold coins safe in the knowledge that they are CGT-free – so you won't be liable for Capital Gains Tax, however much profit you make when you sell them.
There are numerous types of gold coins are available from several countries and in a range of denominations. You could, for example, choose to buy South African Krugerrands, Mexican Gold Pesos, American Gold Eagles or even the Australian Gold Kangaroo.
Beware though – whilst these fascinating gold coins will add diversity and interest to your investment, they are not CGT-exempt. The only gold coins that are not liable for CGT are those that are UK legal currency, such as Gold Britannias and Gold Sovereigns from The Royal Mint.
As they also have a face value and therefore count as UK legal tender, some silver coins from the Royal Mint are also free from CGT. These include the Silver Sovereign, Royal Arms Silver Bullion coin and Lunar Silver Bullion coin. Being silver rather than gold means that VAT is still payable, though.
The question of premiums
A premium is the amount charged by a supplier or dealer over and above an item's intrinsic value, i.e. the value of the gold content in a gold bar or coin. It's usually expressed in percentage terms.
It's quite likely you'll see people saying there are higher percentage premiums on gold coins than on gold bars. That's generally true, but if you are a serious investor aiming at building a reasonably substantial portfolio, then it's worth remembering that CGT is payable on gold bars but not on gold coins. What you might lose by paying a slightly higher premium on gold coins should be more than offset by the savings you can potentially make by not having to pay CGT.
It also depends how you structure your investment portfolio. If you want to ensure you have a high degree of flexibility in when you buy and sell, you will probably want a number of smaller denomination gold coins or the equivalent value of smaller gold bars, e.g. five 1oz. bars instead of one 5oz. bar.
At this level, the premium percentage per gold item will be higher as the cost to the supplier or dealer of storing and handling increases proportionately. This in turn reduces the difference in premium between gold bars and gold coins – but gold coins still have the benefit of being CGT-free. Our view is that whilst it's sensible to be aware of the premium you pay, that information is most useful in helping you choose your supplier or dealer, rather than choosing between gold bars over gold coins.
The best gold coins to invest in
Having established that UK Sterling legal tender gold coins are CGT-free, the next question is, which coins should you choose?
Although all the CGT-exempt gold coins are struck by the Royal Mint, there is still a surprisingly wide choice, in terms of design, value and years minted. Some coins do have an element of rarity value and being able to purchase coins from different years does have an appeal, if you like the idea that your investment portfolio can also be an interesting collection.
The best known legal tender gold coins from the Royal Mint are the Gold Sovereign and the Gold Britannia, so these are the coins we will examine first.
The Sovereign has a history that stretches back over 500 years, and for much of that time has been in circulating currency. Today you're not likely to see someone take a Gold Sovereign from their pocket to pay for their newspaper, but it is nevertheless legal tender – albeit worth rather more than its face value of £1.
Quite possibly the most revered gold bullion coin, the Gold Sovereign is often referred to as "the chief coin of the world" for its dependable quality and status, ensuring it is always in demand. It was first produced in 1489 on the orders of King Henry VII, and has been adorned with a variety of designs. The most enduring has been St. George and the Dragon, created by Benedetto Pistrucci and seen on every bullion Sovereign from Queen Victoria's reign onwards (with a few notable exceptions).
The Full Sovereign contains 7.32g of 22 carat fine gold and is 22.05mm in diameter and 1.52mm thick. The Gold Sovereign is also available in Half, Double and Quintuple versions, which are also CGT-free.
With such a long and distinguished past, both investors and numismatists are drawn to collecting Gold Sovereigns of different dates and designs, and those produced in Royal Mint branches in other countries such as India and Australia. Naturally these older and rarer collectable Gold Sovereigns, provided they are in good condition, continue to increase in value.
First introduced in 1987, the Gold Britannia was upgraded from 22 carat to 24 carat in 2013 and contains one Troy ounce of pure gold. With a diameter of 32.69mm and 2.8mm thick, it is both larger and heavier than the Gold Sovereign. Face value is £100; actual value is, of course, many times more.
As the name suggests, this sought-after coin bears the image of Britannia, featuring the classic design by Philip Nathan. Britannia, in all her various guises, has appeared on coins circulated in Britain for over 2,000, so this instantly recognisable symbol confirms the Gold Britannia's status as a world-leading, high-value coin.
The Gold Britannia is available in ¼ oz. and ½ oz. versions as well as the 1oz. coin, which for 2020 was also produced in an Oriental Border version specifically to appeal to Asian markets. The Britannia has been struck in Silver and Platinum versions too. As the Silver Britannia is UK legal tender it has the benefit of being CGT-free, but you'll still have to pay VAT.
Other CGT-free gold coins
There are other gold coins available from the Royal Mint which, whilst not as well-known as the Gold Sovereign and Gold Britannia, are nonetheless still collectable and both CGT and VAT-free.
The Queen's Beast range represent the heraldic creatures sculpted for the coronation of Her Majesty Queen Elizabeth II in 1953, at Westminster Abbey. These mythical creatures have been recreated on the coins and are available as 1oz. and ¼ oz., with a face value of £100 and £25 respectively. A different beast design is minted every year, which virtually guarantees that the complete set will be collectable. The ninth in the series, for 2020, features the White Horse of Hanover.
The Lunar series is inspired by the Chinese zodiac, represented on the 2020 coin by the Year of the Rat. The first of the series was minted in 2014, and with a new design each year these coins will be sought after by collectors. VAT and CGT-exempt, they are also available in ¼ oz. and 1 oz. sizes.
The Royal Arms coin is a new release from the Royal Mint, and is the same size and weight as the Gold Britannia, with 1 Troy oz. of 24 carat gold and a face value of £100. It takes its name from the current Royal Coat of Arms of the United Kingdom, which combines the Arms of each home nation: England, Scotland, Wales and Ireland.
Finally, there is the Gold Standard, a ¼ oz. 24 carat coin of 22mm diameter, and a face value of £25. This coin was launched to commemorate 200 years since the introduction of the Gold Standard monetary system, which became the basis of the British finances until 1931. The design features a set of balance scales, referring to the absolute accuracy and precision which is a hallmark of the Royal Mint. Like the Royal Arms coin, it is CGT and VAT-free.