Buying physical gold and silver has never been easier, with the number of online vendors, high street providers and banks still eager to provide the assets buyers are looking for.
But, perhaps now more than ever buyers need to exercise caution and “do their research” before making an investment. Here, we investigate four UK taxes – Capital Gains Tax (CGT), Valued Added Tax (VAT), Inheritance Tax and Income Tax in relation to purchases of physical forms of gold and silver.
With an article of this type it’s important to state some “upfront” assumptions, so as to set the expectations of readers:
Capital Gains Tax (often abbreviated to CGT) is a personal form of taxation. CGT arises when assets are sold which have increased in value. There are a large number of asset classes, which are covered, some examples are second homes, stocks and shares, antiques and coins.
Every individual has an annual personal CGT allowance. Gains below and up to the allowance are exempt from CGT, any gains above the allowance will be taxable at the individuals prevailing taxation rate. The 2018/2019 allowance for CGT for “Individuals, personal representatives and trustees for disabled people” is £11,700, click here for rates information.
When reading through HMRC’s Capital Gains Manual, it can be seen that coins, which are UK legal tender at their time of acquisition or disposal are exempt from Capital Gains Tax.
This is because sterling is not an included form of asset for CGT calculation purposes. Examples of exempt coins would be (but are not limited to):
The denomination value is all important on a coin and shows the legal value of a coin, for example, the Britannia below has a value of £100.
All non-UK coins are not currency and are classed as “chargeable assets” and are subject to Capital Gains Tax on any profits, these would include as examples – South African Krugerrands, American Eagles, Canadian Maple Leaf coins, etc.
For further information, click here to visit the HMRC page about Capital Gains Tax.
Gold and silver bars purchased are not legal tender, they have no denomination value and are therefore potentially subject to CGT.
Important considerations about CGT for gold and silver purchases:
VAT is a type of consumption tax and is a mandatory tax for all member states of the Economic Union (EU). VAT is applied to a broad range of purchases of goods, services and other taxable supplies. Businesses ultimately pay VAT to HMRC, but it’s ultimately the consumer who pays at the source of the purchase. VAT is, therefore, an indirect tax on purchases. Rates vary but the current rate at the time of writing was 20%.
When buying gold, it is vital to buy gold, which is classed as “investment gold”. Since 1st January 2000 following EC Council Directive 98/80 EC there is no VAT payable on “investment gold”. This directive harmonised UK law with the wider EU.
This type of gold can be safely bought without VAT implication and effectively saves 20% by buying this form of gold.
The HRMC states that “investment gold” can be bought without the addition of VAT. Investment gold can be defined as:
As gold enjoys a VAT free status for “investment gold” purchases, many investors wrongly assume this will be the case for silver and other precious metals. There are two scenarios, which massively impact whether VAT is charged on silver purchases:
Purchases of silver in the UK when delivered to a buyer are not exempt from VAT and therefore the VAT becomes payable. This does somewhat reduce the appeal of silver as purchases are already 20% more expensive than gold from its base purchase point (as the 20% can’t be recovered by a private buyer upon sale).
This doesn’t necessarily mean that silver isn’t worth investing in, investors need to look at the investment fundamentals including VAT before making a considered purchase.
Silver buyers opting to buy and store their silver in continental Europe, e.g. in locations such as Switzerland or Germany will not be charged VAT. If buyers subsequently choose to have their investment delivered the VAT would then become payable.
Silver coins and bars can be bought for delivery VAT free, but buyers are especially recommended to seek the advice of an Accountant and/or Financial Advisor before buying “VAT-free silver”. Physical Gold Ltd are an example of a VAT-free silver service provider.
Inheritance Tax is a form of personal taxation made on the estate of a deceased individual. The estate will be the sum of assets from property, cash/bank accounts as well as worldly possessions, which include gold and silver.
For most people, Inheritance Tax is not payable as the allowances are quite high. As at February 2019 the Inheritance Tax rates were:
N.B. No Inheritance Tax is payable on estates fully left to a spouse, civil partner, charity or a community amateur sports club.
So, potentially any estates above £325,000 or £450,000, as shown above, will incur Inheritance Tax with gold and silver at their current market valuation being included in the estate as “worldly possessions”.
Individuals wishing to reduce Inheritance Tax can gift their assets away. Assets gifted seven or more years before death will not attract Inheritance Tax. Therefore, all gifted gold and silver purchased:
Income Tax is a form of tax which is personal in nature. The tax paid is based on the amount of income the individual earns less their allowance, with a number of other adjustments too.
As gold and silver are non-earning assets, they don’t earn any income. Investors own gold and silver usually as a “safe haven” form of investment with the aim of medium-long term investment capital gains. In the interim, there is no form of dividend or income as there would be shares or government bonds.
Therefore, income tax is irrelevant to ownership of gold and silver for both coins and bars.
The content above was accurate at the time of writing, which was in February 2019. It includes some opinion and although researched is provided for information purposes only.
We would always recommend you conduct your own research and investment advice before investing in gold, silver and other precious metals. It is highly advisable to seek the services of a licenced Financial Advisor before making an investment.
We trust you have found this article informative and a useful introduction. Buying gold and silver can make for an interesting and rewarding form of investment. Always, do your homework though and buy with tax-efficiency in mind – after all it’s an investment and you want to realise the maximum amount of profit that is possible.