# What is the base cost for CGT of gold bullion?

Client has bought gold bullion (bars and parts of bars) over the years and wishes to sell them now.

• ### Loan to a friend for one year

I have a client who has, for a number of years, been buying gold bullion (bars not coins). www.bullionvault.com is the platform being used.

The client now wants to sell the bullion and I wonder how the base cost for CGT purposes might be calculated. I have a list of all the purchases with dates and amounts paid. Is gold treated for tax purposes in a similar way to shares where, generally, you add up what has been paid and divide by the number of shares to get a price per share, or here a price per gram or whatever the unit might be?

I don't believe there is any need to consider whether there is a trade as the gold has never been sold, just accumulated up until now. Are there any traps that I should be wary of?

### Replies (26)

By Paul Crowley
01st Dec 2021 00:11

If all that has happened to date is buying then I do not see the problem if selling the lot in one go

Thanks (0)
By ccaspell
01st Dec 2021 00:27

Thanks Paul (another late night worker I see).

I agree if he is to sell it all in one go, but if he is to sell it piece-meal (perhaps over a couple of years to keep the CGT down) how is the base cost to be worked out?

Personally I don't know how gold transactions work, but say he bought 50 gold bars over the space of 20 years and now wants to sell 5 of them, would the base cost be 10% of the total price paid? Or LIFO/FIFO? I have no idea, hence my question.

Thanks (0)
By Tax Dragon
01st Dec 2021 01:23

I cannot think of any (valid - ie statutory) basis for saying it could be LIFO/FIFO. It's either going to be selling an identifiable bar (so you know how much that bar cost) or pooled (see s104(3)(b)).

CG11820 might help.

Thanks (0)
By Paul Crowley
01st Dec 2021 01:45

Individual items might be a challenge, depending on how the site works.
Pooling would seem to me to be a defendable position as otherwise the selection of costs could be seen as being capable of manipulation
Assuming that the bullion is fungible and weight only is the measure of value.

Thanks (0)
By Tax Dragon
01st Dec 2021 02:20

A person, another person and another person walk into a pub. Each leaves a gold bar with the (aptly named) bar steward. He puts all three together in the safe, but at the end of the evening, he returns each to its correct owner. How so? He made a mental note of the serial numbers. Each person ordered a third of a barrel of ale. Barman wheeled a whole barrel over to their table and let them fight amongst themselves.

Moral: liquids (such as ale) are truly fungible. Solids are probably nearly always forensically distinguishable, and easily so if given unique identifiers.

All that said, CG11820 does acknowledge that bullion may be fungible, and, as you say, if all you have is a right to a certain amount*, that's clearly within s104(3)(b).

*I think I heard that once upon a time banknotes used to be underwritten in gold, and you could turn up at the bank and demand gold to the value of your note. Sounds like an urban myth to me, but that would be the same sort of thing.

Thanks (0)
By lionofludesch
01st Dec 2021 09:22

Tax Dragon wrote:

*I think I heard that once upon a time banknotes used to be underwritten in gold, and you could turn up at the bank and demand gold to the value of your note. Sounds like an urban myth to me, but that would be the same sort of thing.

No, that's true. But, in those days, it meant sovereigns, which were still in circulation.

I recall when pound coins were introduced in 1983, some old dear was being interviewed in a voxpop and said "Eeeh, it doesn't seem like money if it's coins instead of paper." I can imagine folk saying pretty much the opposite 70 or so years earlier.

Thanks (0)
By Paul Crowley
01st Dec 2021 09:35

+1
Paper was originally backed by gold

Thanks (0)
By Dib
01st Dec 2021 13:16

Hence the notes say "I promise to pay the bearer on demand the sum of £X" X = 10 for a £10 note for example so it could be exchanged at one time for 10 lbs in gold. Not sure if that is avoirdupois (16 oz to the lb) or troy (12 oz to the lb) pounds though. I think, but CBA to check, that bank notes are promissory notes which is why they are called notes rather than some other term for non-metal currency.

Thanks (0)
By Duggimon
01st Dec 2021 09:23

Are they fungible or non-fungible? If fungible then calculate the same way as shares, i.e. weighted average, if non-fungible then obviously it's the cost for the bar that is sold that's used.

Thanks (0)
By Tax Dragon
01st Dec 2021 09:38

+1

Btw, I looked up s104(3)(b) (someone mentioned it above). It doesn't exist. But s104(3)(ii) does, and that says what I think someone must have thought s104(3)(b) said.

Thanks (0)
By ccaspell
01st Dec 2021 10:09

Thanks to the hive mind :)

I thought that some kind of pooling would apply but I didn't know about s104(3)ii - that makes perfect sense if gold bullion is indeed fungible (why does that make me think of mushrooms? My mind is a strange place to be stranded in sometimes).

I shall check with the client whether each gold bar is marked, however the website seems to say that the client doesn't actually own an actual bar but a share in it, which adds to the s104(s)ii stance.

Thanks one and all. When I have my meeting with the client tomorrow I feel that I am at least better armed than I was 24 hours ago.

Thanks (0)
By Justin Bryant
01st Dec 2021 10:28

NB some gold coins are GBP£ currency (e.g. British Sovereigns) and are CGT exempt.

Thanks (0)
By ccaspell
01st Dec 2021 10:54

Thanks Justin - I knew that which is why I said that we were talking about gold bars and not coins, but it is a very good point to flag up for others reading this for the first time.

Thanks (0)
By Justin Bryant
01st Dec 2021 11:14

Yes; I saw that after the edit block did its job. Why would you not buy CGT exempt gold in the 1st place is my question, unless there is a big on-selling discount etc.?

Also, it makes sense to only buy bars that can be sold with gains below the CGT annual exemption of course.

Thanks (0)
By ccaspell
01st Dec 2021 12:16

Exactly - why would you not buy CGT exempt gold? Clients do strange things sometimes.

Thanks (0)
By richard thomas
01st Dec 2021 15:15

And after you've worked out the CGT base cost of the gold you could relax by reading the Court of Appeal in Norman Wisdom v CIR.

Thanks (2)
By Hugo Fair
01st Dec 2021 16:26

I hadn't realised previously in what a jolly style Lord Justice Harman wrote his findings ... it's like listening to him chat in his club whilst sipping one's brandy!

Thanks (1)
By richard thomas
01st Dec 2021 16:38

Yes indeed. His son Sir Jeremiah Harman, who only made the High Court, was a very different kettle of fish. Worth reading his obit in the Times. He was effectively forcibly retired when he took 2 years to write his judgment in a tax case and lost his papers so had to ask counsel for help. He famously kicked a taxi-driver outside the Law Courts.

Thanks (0)
By Hugo Fair
01st Dec 2021 17:28

Wow, it's hardly worth dying if you're going to get an obit like that ... "he was rude, lazy, short-tempered, unpredictable and completely out of touch." One wonders what other epithets might have been added if it wasn't published in the Times.

Thanks (1)
By Tax Dragon
01st Dec 2021 17:04

richard thomas wrote:

And after you've worked out the CGT base cost of the gold you could relax by reading the Court of Appeal in Norman Wisdom v CIR.

One wonders whether that decision would have been reached had CGT existed at the time of the transactions. (Not that I'm suggesting any sort of unconscious bias in the decision of the court, you understand.)

Reading Marson v Morton, it seems I'm not the first one so to wonder.

Thanks (0)
By Paul Crowley
01st Dec 2021 23:18

The question really is was there a profit motive?
For what purpose did this client choose to buy something that, in this case, he has never seen, touched or enjoyed or even had the oportunity to photogragh for the gram (social media showing off)

Thanks (0)
By Tax Dragon
02nd Dec 2021 02:07

I know it's an accepted 'badge of trade' (so my comment here merely displays my incorrect thinking) but profit motive for me distinguishes an investment, business or trade from say a hobby; it doesn't really distinguish between investment, business and trade.

Also, we all know about the badges of trade (I think by the time of Marson v Morton, mentioned above, nine had been identified); I don't recall anyone ever talking about the badges of investment. One such badge might be that you buy from and sell to the same person. Typically a broker. Whether that's stocks and shares, cryptocurrency, or gold or (in Norman Wisdom's case) silver bullion.

Thanks (1)
By Hugo Fair
02nd Dec 2021 10:27

Interesting thought and I can see the logic ... but some of us 'old school' investors would find that the original seller is no longer around (25-40 years later) to re-purchase our shares - despite us being the epitome of non-trading investors!

I suspect duration of holding would have more merit - and might be more consistent with the 'markers' of other non-trading activities (cf. BADR, EIS, etc).

Thanks (1)
By Tax Dragon
02nd Dec 2021 11:04

Yes I'm sure if we put our minds to it we could come up with quite a few badges of investment. Just as with those of trade, they would be indicators, not requirements and not proof.

It's possible to have an investment business. The increased number and regularity of transactions and short duration of holding you mention might indicate you have left the 'old school' and now have a business. But it's still not trading. IMHO. (And I'm pretty sure you would find HMRC - if HMRC still exists - takes that view too, when you try to claim sideways relief for your losses.)

Thanks (0)
By Hugo Fair
02nd Dec 2021 16:01

Now there's a challenge you've (quite possibly inadvertently) set me ... to see if I can outlast HMRC!
Not being of a naturally modest inclination, I feel I have slowly but surely surpassed them over the years in all sorts of measures ... but existential longevity is a nice new (if unlikely) target.

Thanks (1)
By More unearned luck
02nd Dec 2021 17:59

FYI, there is an article on Cryptocurrencies in the current edition of Tax Adviser Mag.

Thanks (0)