Capital Gains Tax and costs

Matthew2018

I am thinking of investing in something physical such as whisky, paintings, diamonds etc.

These would be stored somewhere safe such as an air conditioned or high security vault. Of course I would have to pay for storage costs and insurance.

Can these costs be subtracted from the gain when I eventually sell? I have tried looking at HMRC and other official sites and cannot see this mentioned.

Suppose I bought something for £50,000 and sold it for £63,000 several years later. The gain would appear to be £13,000 which is above the CGT allowance, so tax would be payable.

The storage and insurance costs during that time came to £2,000. If I was able to take this off the total to reduce the amount of gain, the gain would only be £11,000 which would mean no tax payable.

So can I take costs off the overall gain to reduce the amount of CGT to be paid?

HappyHarry

Matthew2018 wrote: »

I am thinking of investing in something physical such as whisky, paintings, diamonds etc.

These would be stored somewhere safe such as an air conditioned or high security vault. Of course I would have to pay for storage costs and insurance.

Can these costs be subtracted from the gain when I eventually sell? I have tried looking at HMRC and other official sites and cannot see this mentioned.

Suppose I bought something for £50,000 and sold it for £63,000 several years later. The gain would appear to be £13,000 which is above the CGT allowance, so tax would be payable.

The storage and insurance costs during that time came to £2,000. If I was able to take this off the total to reduce the amount of gain, the gain would only be £11,000 which would mean no tax payable.

So can I take costs off the overall gain to reduce the amount of CGT to be paid?

You might be better posting this on the 'cutting tax' board for more detailed replies.

However, the answer is no. Costs of purchase and sale may be deducted, and in some cases, cost of improvement of the asset. But not costs for storage or insurance.

https://www.gov.uk/capital-gains-tax-personal-possessions/work-out-your-gain

The items you mention are extremely high risk. If you're thinking of investing in such things, the general wisdom is to invest less than 5% of your investable assets in such things, and be able to shrug off a complete loss.

bowlhead99

Storage and insurance is a fee you pay for a service received. So the standard approach is that it has nothing to do with the gain you make on selling an item for more than it cost you to acquire.

Sometimes, a necessary cost in acquiring an asset (e.g. stamp duty on buying a house, or stockbroker fee/commission on buying a share on the stockmarket) can be added onto your costs. And likewise a commission paid on selling your asset could be deducted from your gross sale proceeds to get to the relevant sale proceeds for the gains calculation.

But the fact that you wish to store the items somewhere and pay for that service because you don't have adequate storage facilities of your own; or you want to pay insure against damage or theft because you are a prudent or nervous type of person... neither of those are anything to do with the cost of acquiring the asset or the proceeds received from its disposal.


Alternate option: establish yourself as a business with the business model of trading in (buying and selling) paintings or diamonds etc. Such traders - like the art gallery I've bought from - do not pay 'capital gains' tax at all. The difference between what they bought it for and what they sell it for is simply profit, like it is to any trader. The costs of running their trade (including storage, insurance, employees, accounting, administration) all get deducted from their sales revenue in addition to the direct costs of sales, to get to taxable profit).

However, then (if they are a partnership / sole trader, rather than an incorporated business) they pay tax on that profit from the trading business at income tax rates, which are higher than CGT rates; and if they are carrying on the business through a company they will pay corporation tax on the profit and then pay tax again when they extract the cash from the company by way of dividend or salary.

talexuser

If you were able to do that then a lot of people would be paying a lot less CGT. As far as I know you can only subtract the direct cost of buying and selling eg shares, storage is not applicable. However if you sell at a loss compared to buying, that loss can be deducted from other gains.

Keep_pedalling

Chances are, on those sort of investments you would be looking at losses, so any CGT liability that arises should be treated as a bonus

kidmugsy

bowlhead99 wrote: »

Alternate option: establish yourself as a business with the business model of trading in (buying and selling) paintings or diamonds etc. Such traders - like the art gallery I've bought from - do not pay 'capital gains' tax at all. The difference between what they bought it for and what they sell it for is simply profit, like it is to any trader. The costs of running their trade (including storage, insurance, employees, accounting, administration) all get deducted from their sales revenue in addition to the direct costs of sales, to get to taxable profit).
... if they are carrying on the business through a company they will pay corporation tax on the profit and then pay tax again when they extract the cash from the company by way of dividend or salary.

Interesting suggestion.

If the limited company were to make pension contributions they would be free of corporation tax as long as HMRC didn't think them disproportionate to salary. The first £2k of dividends per tax year are (currently) free of income tax.

Maybe it's time for MatthewTrading Ltd.

kidmugsy

As for personal trading, gold sovereigns dated after a particular Victorian year are free from CGT. It might be worth checking gov.uk, or perhaps the Royal Mint website, to see the CGT rules about bullion versus coins. (And also check the VAT rules for gold vs silver.)

Matthew2018

Thank you to all who have answered.


To me the costs of ownership affect the bottom line. To know how much profit I've made I add the cost of ownership to the costs of acquisition to get the final cost. My profit is also affected by inflation. HMRC do not see it that way. Oh well that's the way it is.



Thanks for the tips on Ltd company. I've recently closed my limited company and wouldn't want to go back to that - too big a hassle. At one time it was basically dormant and I hadn't taken any money out for over a year. That didn't stop HMRC trying to fine me for not sending a employee record to them. I had tried but they do not accept employee records for a nil amount. Catch 22 or what?

eskbanker

Matthew2018 wrote: »

To me the costs of ownership affect the bottom line. To know how much profit I've made I add the cost of ownership to the costs of acquisition to get the final cost. My profit is also affected by inflation. HMRC do not see it that way.

You're comparing apples with oranges here - I can understand why you'd choose to factor a range of costs into your personal calculation of bottom-line profit, but by definition HMRC are looking specifically at gain (in asset value), so effectively you're thinking about a P&L analysis whereas HMRC are looking at the balance sheet....

Dox

Matthew2018 wrote: »

I've recently closed my limited company and wouldn't want to go back to that - too big a hassle. At one time it was basically dormant and I hadn't taken any money out for over a year. That didn't stop HMRC trying to fine me for not sending a employee record to them. I had tried but they do not accept employee records for a nil amount. Catch 22 or what?

What. See https://www.gov.uk/stop-employing-staff

OldMusicGuy

Invest in classic cars. Much more fun and afaik they do not attract CGT because they are "wasting assets" (although I am not a tax expert). Mine is valued at 37% more than I paid for it nearly 4 years ago, and it's only going up in value. Plus I get to use it and have a lot of fun with it.