FIFO Principle in Precious Metal Sales

The FIFO principle (First In, First Out) is a consumption-sequence convention used when calculating capital gains from physical precious metals. Anyone who, for example, buys gold in several tranches at different times and prices and later sells part of the holding must, for the purpose of determining the gain, assume that the units bought first were also sold first – regardless of which specific coins or bars physically change hands.

Relevance for UK Capital Gains Tax

In the United Kingdom, profits from selling physical precious metals may be subject to Capital Gains Tax (CGT). There is no German-style one-year speculation period – gains can be taxable no matter how long the metal has been held. What matters is the acquisition cost, and identifying which purchase a disposal relates to. FIFO-style matching helps establish which acquisition cost applies:

1. The first purchase is treated as sold first → its acquisition date and cost are used.
2. The taxable gain equals the disposal proceeds minus the matched acquisition cost.
3. Whether tax is actually due depends on whether the total net gains for the tax year exceed the annual exempt amount.

Note that UK legal-tender coins issued by The Royal Mint – such as the Sovereign, Britannia, Lunar and Queen's Beasts – are CGT-exempt with unlimited gains, so FIFO matching is chiefly relevant for gold bars and non-legal-tender coins.

Worked Example

Purchase 1: 10 oz gold  on 01/03/2023  at £1,500  = £15,000
Purchase 2: 10 oz gold  on 01/09/2024  at £2,000  = £20,000
Sale:        5 oz gold  on 15/04/2025  at £2,300  = £11,500

FIFO -> acquisition cost: 5 x £1,500 = £7,500
Gain: £11,500 - £7,500 = £4,000 (subject to CGT above the annual exempt amount)

Because the five ounces are allocated to the first purchase (March 2023), the earliest acquisition cost is used to compute the gain. Had the more recent units (Purchase 2) been used instead, the gain – and therefore any CGT – would differ.

Practical Notes

• Record keeping: Every purchase should be documented with date, quantity, cost and dealer invoice so that the FIFO allocation can be substantiated in the event of a dispute.
• Pooled holdings: For bars or coins that are not individually numbered, a consistent matching method should be applied; keep clear records so HMRC can follow the calculation.
• Mixed holdings: Different asset types (gold ounces, silver bars, etc.) are matched separately – gains and losses are computed per asset.
• Investment gold is VAT-exempt: Investment gold is exempt from VAT under HMRC rules (purity ≥ 995‰; in line with Directive 2006/112/EC); FIFO concerns solely the capital gains side.

The historical gold prices can help reconstruct the original acquisition value if receipts are missing. You can estimate the likely tax effect of a sale in advance with the Tax Estimator.

Note: This article is for general information only and does not constitute tax or investment advice. For an individual tax assessment, please consult a qualified accountant.

In Brief

The FIFO principle automatically allocates the oldest holdings first when precious metals are sold. Combined with the CGT exemption for UK legal-tender coins and the annual exempt amount, careful record keeping is what protects investors from unexpected tax.