Volume 47, Number 8, August 2010
The Taxman and your coin collection THE budget announcement by the new Coalition Government, on June 22, has put the subject of taxation back into the news. So, this month, in place of my usual “Comment”, GRAEME RESTORICK of Chard (1964) Ltd explains the implications of the new tax rules with regard to coins. ....................................................... IN the budget it was announced that VAT was to rise from 17.5 to 20 per cent from next January and Capital Gains Tax to rise from 18 to 28 per cent for higher rate taxpayers with immediate effect. These tax increases will obviously have an effect on the price of most goods and services, including many coins, although there are some notable exceptions, as is explained below. Since January 1, 2000, investment gold has been VAT free throughout the UK and the rest of the European Union. This includes all world gold coins struck after 1800, as well as bars. Partly because of this tax incentive, world gold coins such as Australian Nuggets, Krugerrands and Canadian Maples, as well as older coins such as ducats, 20 franc pieces and sovereigns, amongst many others, have become very popular with collectors and investors. The VAT exempt status of Investment Gold, which is EU wide, is not expected to change in the foreseeable future. Unfortunately, whilst investment gold is VAT free, it is not necessarily CGT-free. In the UK at least, world gold coins and gold bars are now subject to CGT at the rate of 28 per cent. Although the first £10,100 worth of gains made by an individual in a single tax year is exempt from taxation, all subsequent gains are taxable. This means that if you had, for example, bought some Krugerrands (VAT free) for a total of £50,000 and you later sold them for £75,000, £14,900 of your £25,000 gain would be subject to taxation (assuming you hadn’t already used up your exemption amount for the current financial year). The other bit of bad news is that gains are not index linked to inflation. If you had bought a single Krugerrand for £350 in 1980 and you sold it for £800 in 2010, the difference of £450 would count as a gain for CGT purposes, even though in real terms, you had in fact made a loss. However, the good news for UK residents who collect British coins is that legal tender sterling coins (including silver Britannias) are CGT exempt. The even better news is that gold coins which are legal tender sterling are also VAT exempt, making them the only coins that are completely tax free. These include all British sovereigns struck after 1837 and gold Britannias, as well as their multiples and fractions. For UK resident collectors specialising in Sovereigns and/or Britannias, this can be of enormous advantage, especially as they expect that there may come a time when they may wish to sell their collection. Collectors of coins other than sterling and/or modern gold issues may find buying and selling coins a slightly more expensive proposition than was the case before the present budget, as a result of the recent tax increases. However, whilst they do not benefit from the tax advantages to be had from collecting modern British gold, it should not dissuade them from buying those coins which do interest them. Collecting coins is very much a matter of personal taste and most people do not get into the hobby simply to get the best return possible for their investment, and nor should they. If you are one of these collectors however, you need to be aware of the potential consequences of disposing of your collection too quickly if and when the time comes for you to sell it. Having to sell your collection at a future date may already be painful enough, without the added burden of having to pay the taxman a huge sum of money for the privilege for doing so! ....................................................... I thank Graeme for putting this perplexing subject into perspective for us and I am sure that if any reader still has doubts or uncertainties regarding coins and taxation he would be willing to give advice—but please, ask your friendly local accountant first and then write to him, via the Editor.
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