Gold & Tax: VAT-Free & CGT Exemption
Gold enjoys tax advantages due to its status as a form of reserve currency. Read on to find out how.
What is VAT?
When goods and services are traded in the UK, they are usually subject to a standard value-added tax, presently levied at 20%. Certain services are offered at a lesser level - for instance, energy at 5%.
Does VAT apply to Gold?
Prior to January 2000, gold was taxed at the standard rate. This regulatory position meant that the UK gold market was not as competitive as that of other EU member states. Changes in EU laws introduced an exemption which meant that, for VAT purposes, gold came to be treated the same as other investments such as stocks and shares.
Which gold products are VAT-free?
At Sharps Pixley, all gold bars, whether branded with the Sharp Pixley name or that of Degussa, are VAT-free. The bars range in size from 1g minted bars through to 1kg investment-grade cast bars to accommodate the budgets and investment aims of all individuals.
In addition, certain gold coins are also deemed VAT exempt, if they are investment-grade (with a fineness between 0.90 and 0.9999) and considered legal tender. At Sharps Pixley, our range of VAT-free coins are:
Introduced in 1987, the gold Britannia was the first European investment coin. Manufactured by the British Royal Mint, the gold Britannia is available in denominations of: 1 oz, 1/2 oz, 1/4 oz and 1/10 oz.
The Sovereign has a long and storied history. It was first issued as a gold hammered coin in 1489, during the reign of Henry VII. However the modern day gold sovereigns were first struck in 1817, to fill the shortage of coins left by the Napoleonic wars. One of the most widely collected coins, certain years are highly sought after for their numismatic value and have sold for record prices.
Gold Queen’s Beasts
Introduced in 2016, the Queen's Beasts Series are modelled on the ten heraldic statues that were created for the coronation of Queen Elizabeth II in 1953 by the British sculptor James Woodford. The beasts guarded the western annexe to Westminster Abbey (the coronation church of the British monarchy) and also represented Elizabeth’s historic royal lineage.
Gold Lunar Series
Celebrating the longstanding connection between the UK and China, the Lunar series illustrates the Chinese Zodiac. First launched by the Royal Mint in 2014 with the Year of the Horse coin, the series reworks and fuses Chinese tradition with British craftsmanship. Symbolising prosperity, these coin offer a way for individuals to introduce variety into their investment portfolios.
What is CGT?
Capital Gains Tax is applied to the profit that you derive from disposing of an asset that has increased in value. Disposing of an asset includes selling the item, gifting it, transferring it to others, swapping it, or receiving compensation for it (for instance through an insurance payout in the event of its loss or destruction). In other words, the tax is applied only to the gain that has been made, not the total amount of money received.
How is it calculated?
The rate of capital gains tax applied varies. It depends on an individual’s current tax bracket. Those paying basic income tax pay 10% for gains. Those who pay higher rate income tax are subject to 20% on chargeable assets.
What is Capital Gains Tax allowance?
The rules around CGT are complex. Some reliefs may be claimed and certain losses can be offset. There is also an annual tax-free allowance (which most individuals can take advantage of) which is similar to the personal allowance for Income Tax.* Often referred to as the annual exempt amount, this is the amount of tax-free profit an individual is entitled to make during the course of the year.
The level of tax-free profit is set annually by the government. Whilst it applies equally to everyone, the figure varies each tax year. Currently, for the period April 2018 to April 2019, the tax-free allowance is £11,700. Capital gains tax is only payable on the amount that the allowance has been exceeded by. For further information, please visit the HMRC website by clicking HERE.
* Please note: Non-domiciled UK residents, who claim the remittance basis of taxation, are not entitled to the annual CGT exemption.
Do investors have a responsibility to calculate and declare the right amount of CGT to HMRC?
Investors are responsible for ensuring they have correctly calculated and declared the amount of CGT owed. As there are a number of variables that can influence how much is due, it is advisable to seek the services of an experienced accountant.
What is the best way to save on CGT when buying gold?
For investors making larger purchases or for those concerned about exceeding annual CGT allowances, there are options available that help minimise or avoid CGT. One way of reducing the amount of tax payable is simply selling off gold bullion in smaller quantities. Distributing holdings amongst smaller unit gold coins or bars enables investors to have the added flexibility of selling parts of their bullion over more than one financial year. So long as the profit made on bullion sold is below thresholds for that financial year, no CGT will be incurred.
Are there any exceptions which can transform the profitability of investment?
Yes: legal British currency. Gold bullion held in the form of bars, ingots or foreign denomination coins is subject to CGT. However, certain investment coins are accepted as currency in the UK and as such fall outside of the CGT rules. This means they can be traded without incurring CGT liability, irrespective of profit made. Gold Sovereigns minted from 1837 onwards as well as Britannias - both of which are considered legal tender currency - enjoy this tax-efficient status.
Although the Britannia gold coin contains one troy ounce of gold, it has a face value of £100. The coin is also issued in fractional sizes of one-half (with a face value of £50), one-quarter (£25) and one-tenth of a troy ounce (£10). Meanwhile the gold sovereign is considered to be valued at £1.
The bottom line
Having a diverse portfolio is always a good idea but it is important to be aware of how much you could potentially lose to CGT. Holding some part of your physical gold in UK legal tender coins is a sound investment strategy as it does not affect your CGT status.
The above guide is only intended to provide an introduction to Capital Gains Tax and the treatment of gold bullion; seeking advice from an accountant or professional on your own individual tax position is advisable before proceeding.