Stop! Don’t click away! You haven’t stumbled onto an old post from 2011, when the gold price was soaring and it looked as though paranoid people with gold bars buried beneath their back gardens might really inherit the Earth.
And yes, I do know how the price of gold has slumped since then.
Here’s a graph of the carnage:
Gold has fallen about 42% from its 2011 peak in dollar terms – but that peak followed a tremendous bull run that saw the gold price multiply roughly five-fold from the late 1990s.
Capital gains tax on gold could therefore still be a very real issue if you bought and held gold from those lows and now want to sell.
More to the point, call me a contrarian (please do, it’s the highest compliment) but I’m much more interested in owning gold now it seems about as relevant as fairy tale treasure from The Hobbit, compared to when its price was making the nightly news.
Not very much gold, mind. I’m thinking I’d like to have 2-5% of my portfolio in gold, for insurance and diversification, for the long-term.
Tax on gold gains
This isn’t a simple matter, because there are always quirks with tax.
Indeed with the UK tax code clocking in at 17,000 pages at the last (surely fatal) count, you could argue it’s all one enormous quirk.
How gold is taxed is as confusing as everything else tax-related.
The specific tax on gold profits you’ll pay depends on what form of gold you own, and whether you have it in an ISA or a SIPP, or even under your mattress.
No income tax, no VAT
So what kind of taxes on gold are we talking about?
The good news for all you oligarchs out there is there’s no wealth tax in the UK payable for just owning gold.
Fill your boots! Then put your boots in a safety deposit box. You’ll not be taxed for just hanging on to your gold.
There’s also no income tax to pay on gold.
Of course that’s because gold pays no income – which is one of its most unattractive traits from a pure investment point of view, though not a shocker from a Laws of Physics perspective.
Gold isn’t a productive asset like a farm or a piece of machinery. It’s just a lump of metal.
If you own shares in a gold miner then it might pay a dividend – if it is one of the very few miners that isn’t intent on squandering every last dollar it gets on discovering harder to process deposits miles beneath the Earth’s crust.
And should you be lucky enough to get such a dividend, it will be taxed just like dividends from any other share.
Finally, there’s no VAT to pay when you buy gold bullion or gold coins for investment purposes, so no worries there, either.
(Weirdly enough, VAT is payable on purchases of silver. Perhaps the gold conspiracy theorists are on to something?)
Capital gains tax and gold
So far so good.
However there is one kind of tax you could well have to pay on gold, and that’s Capital Gains Tax (or CGT for short).
I’m going to assume you understand the basics of CGT from here. If you don’t, then please go and read my quick primer on CGT in the UK and then come back ready to keep up with the rest of us high-flyers…
Back? So we now all know that CGT is a tax levied on the gains you make when you dispose of (most likely by selling) certain investments.
And that includes – in some forms – gold.
“Some forms”, I say?
Yes – because not all gold is taxed equally.
In particular certain gold coins are considered legal tender in the UK.
This makes them free of CGT.
Look for coins produced from the Royal Mint that qualify as legal tender.
According to Moneyweek:
…post-1837 British sovereigns and Britannia coins are exempt from Capital Gains Tax.
That’s because these post-1837 sovereigns and Britannias are legal tender.
But beware of accidentally buying coins that attract VAT:
If a coin is bought as a investment in gold bullion, then it should normally be exempt from VAT.
However, if a coin is sold for more than 180% of its gold-value content, it’s clearly attractive as a collector’s item and is then subject to VAT.
British gold sovereigns are recommended because they can be appealing to collectors as well as for their gold content. This gives you two potential ways in which your gold investment can hold or increase in value when you buy coins.
Note that it’s the legal tender aspect that makes these coins exempt from CGT, not their size or handiness.
It wouldn’t be advisable to invest in gold via, say, gold clocks or wedding rings (the latter for all kinds of reasons…) as you’d still be potentially liable for VAT when you buy and for CGT when you sell.
ISAs and SIPPs and gold
Aside from coins, your best bet to avoiding CGT on gold is to hold your gold in an ISA or a SIPP1.
This is where it gets tricky, because some ways of investing in gold that are attractive from one perspective are not so attractive – or not even possible – from another.
For instance, some people are keen to own physical gold, not so-called ‘paper gold’ like a gold ETF (or more precisely an ETC, or Exchange Traded Commodity).
These people want physical gold specifically because they are trying to hedge against disruption or disorder in the financial system.
Unless you have your own private fort, it could mean using a gold platform like BullionVault and directly owning gold kept in a vault under the Swiss Alps.
But such gold bullion is liable for CGT – and it can’t be held in an ISA.
In contrast, gold ETFs like the iShares Physical Gold ETF can be bought and sold in your ISA just like any other share. This makes it easy to gain exposure to the gold price while shielding your investment from tax – provided you don’t mind using an ETF.
And just to confuse matters, some of the physical gold platforms do enable you to hold gold in a SIPP, depending on the provider.
BullionVault, for instance, works with several SIPP platforms, and it isn’t shy about highlighting that buying gold through your pension means getting the Government to pay up to 45% of the cost of your gold for you, via your tax rebate.
Doubtless that’s extra appealing to a certain kind of gold enthusiast…
It all means you will need to shop around to most efficiently use your tax shelters to protect your personal hoard from tax.
Here’s a summary of gold taxation:
|Type of gold||CGT?||ISA-ble?||SIPP-able?|
|Gold coins (UK currency)||No||No||No|
|Gold coins (not UK currency)||Yes||No||No|
|Gold bars (owned outright)||Yes||No||See below|
|Gold (owned via a platform)||Yes||No||Yes|
|Gold teeth*||Oo aar!||Oo aar!||Oo aar!|
As a rule of thumb then, my understanding is that:
- For a modest amount of gold outside of ISAs and SIPPs – UK gold coins that are legal tender are best. You can buy CGT-exempt Sovereigns from The Royal Mint. If you store with the Mint too then it will buy them back from you later. See this FAQ.
- Gold in an ISA – Low-cost gold ETCs are best.
- Gold in a pension – Gold ETCs are best, or you could consider one of the qualifying gold bullion providers who sell their services to UK pension schemes, such as BullionVault or the aforementioned Royal Mint.
- Owning gold bars like a bond villain – Direct ownership of bars with storage in a suitable fortified bank, or else owning a certain monetary value of real physical gold with the likes of BullionVault or The Royal Mint… but remember you will get taxed on capital gains in this instance.
From where I’m standing option four doesn’t look very relevant to most of us, but the other three options give us a variety of ways to invest in gold tax-free.
Please note though that I’m far from the pub bore on gold – and certainly not someone who has experience of holding gold in a pension scheme. (I read up on it to finish this article.)
So as ever please be sure to do your own research in full to avoid putting money into a dodgy scheme, or investing your pension in something that ultimately hits you with a tax bill.
Equally, if you are an expert on the minutia of investing in gold, then any hands-on tips in the comments below would be appreciated.
(Note: Advice about the global financial conspiracy or getting out of fiat money before the great riots of 2032 are not really our thing on Monevator, thanks. 🙂 )
Watch out for costs with gold
Remember that while taxes can severely reduce your returns, so can plenty of other things.
In the case of gold, additional sappers of your hoard could include high dealing costs, high storage costs, insurance fees, and even theft.
Oh, and the risk you might suffer from the potentially ruinous decision to sell all your equities and even your house to buy yet more gold because you think the country is going bankrupt. (Hey, people do crazy things with gold…)
As usual, it’s over longer time periods that these smaller costs add up.
For instance, let’s say storing gold coins costs you 1% a year versus 0.25% in annual costs for a cheap gold ETC.
Let’s also suppose the gold price rises 5% a year for the next 20 years.
You decide to split your £20,000 investment in gold between gold coins and an ETC, like any good risk-averse investor.
After two decades:
- The £10,000 in gold coins is worth £21,911
- The £10,000 in the gold ETF has grown to £25,298
Quite a difference – enough to eat into a big chunk of those CGT savings you’d expect from going down the coin route compared to the ETC option.
To be sure this is a very simplistic example. In reality the costs for storing gold coins probably wouldn’t compound at the same rate as the price of gold (and you can’t ‘clip’ gold coins to pay your fees, so anyway those fees would have to be paid from money from outside of your gold hoard, which would alter the maths).
But you get the picture.
Note also that individual circumstances will vary.
If you’re a paid-up member of the 1% then you might already have your own liveried security vault somewhere in deepest Knightsbridge.
By all means squeeze in a few bars of gold into the space beneath Aunt Agatha’s tortoiseshell sideboard, and so cut your costs.
Equally, if you’re a daredevil risk-taker who is happy to hide your gold coins in a biscuit tin under your begonias, then you might escape storage costs altogether. Few would recommend it though.
Finally, as I’ve noted there are plenty of other things to think about with gold.
Trading costs are an issue for some forms of physical gold investment, because not surprisingly people who buy it want to know that they really are buying gold off you, not chocolate coins.
It costs money to get gold verified2, which means higher turnover costs.
Alternatively you can keep your gold in a so-called accredited facility (some of which I’ve talked about above) but then we’re back to higher storage costs.
I’ll look at this again in a future article.
Gold and tax: The takeaway
Think about how gold is taxed and how long you intend to hold it. That way you can best decide how to allocate any funds towards your investment in gold.
Perhaps the best thing to do, as usual, is to diversify your gold holdings across a range of different forms and platforms – particularly if you’ve got a large portfolio to manage – as no doubt the tax specifics will change in the future.
You might own some British sovereigns stored at your local secure bank or with The Royal Mint, a gold ETF in your ISA, and perhaps a dollop of gold bullion in your SIPP via the likes of Bullion Vault.
That’s how I intend to slowly build up my own mini gold hoard, anyway – but I’m certainly in no rush.
Note: This article is about how gold is taxed, not how about politicians could confiscate it all if they wanted to or how ETCs are as bad as shares compared to a solid coin held in your hand or how anyone who doesn’t swap everything for gold is going to die a pauper – nor equally about how Warren Buffett thinks you’re an idiot if you buy even one ounce of gold. So please keep comments on-topic. I expect we might still get some comments in this vein, what with it being an article about gold, but be warned that anything too barmy or abusive will be deleted. Also note the Bullion Vault link is an affiliate link, which means I get a small percentage cashback from any new signers – but this doesn’t cost you anything at all, it’s just a marketing payment from them.