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What caught my eye this week.
Data from MoneySuperMarket on household disposable income was presented by This Is Money this week as a regional ranking of which city’s citizens have the most spending power:
Disposable income is defined here as what you have left to spend after paying some 31 kinds of outgoings – from rent to council tax to car fuel.
Hence why London is fourth on the list. Higher earnings are countered by higher bills, especially for housing.
Of course, many Monevator readers will look at disposable income not as money to be spent but to be saved.
That snowball won’t just roll itself you know.
Geo whiz
We probably haven’t sufficiently discussed this end of geo-arbitrage – that is, living somewhere cheap to save more – on Monevator.
We did see the post-FIRE angle in Jake’s FIRE-side chat. And Squirrel highlighted the financial benefits of living in her rather rundown Northern town in her interview, too.
But we’ve never, say, cranked hard numbers on pursuing FIRE in Cardiff versus Clapham.
Then again, how could we? Where you live is a pretty personal decision, and everyone’s numbers will be different. Especially as any impact of moving could quickly be overwhelming by upgrading or downsizing at your new destination.
Food for thought anyway – and comments welcome.
That Amundi ETF: ISA update
Finally, a bit of good news on Amundi’s pesky former favourite global tracker ETF, which we wrote about delisting from the LSE a few weeks ago.
Developments!
Firstly, a comment a few days ago from The Accumulator:
We’ve received word from an industry contact that the distributing version of the Amundi Prime Global ETF is now ISA eligible, and an LSE-listed version could be tradeable by the end of January.
The ETF is currently listed on the German exchange (Xetra) and trades in GBP.
The product has now received approval under the UK’s Overseas Fund Regime (OFR). Once Amundi receives the nod from the LSE then there should be a version on the London Stock Exchange.
The ISIN for the distributing version of Amundi Prime Global is IE000QIF5N15. Xetra ticker: MWOZ.
The pre-merger ISIN was LU1931974692.
The ETF is still listed by Amundi as ISA ineligible on their website but watch this space:
We don’t have any information on the status of the Acc / Capitalising version (Old ISIN: LU2089238203, new ISIN: IE0009DRDY20).
And it now seems – via the link above – that the ‘IE000QIF5N15’ ETF is indeed ISA eligible. At least that’s what this factsheet says, so show it to your platform if you need to.
Hopefully good news for some of you.
Have a great weekend!
Is FIRE – Financial Independence Retire Early – the best way for most of us to change our lives for the better? Author, podcaster, and entrepreneur Rob Dix is back to suggest another approach. Please enjoy this extract from his upcoming book: Seven Myths About Money: And The Truth About Finding Financial Freedom.
MYTH – If you work hard enough today, retirement will be your reward.
REALITY – It’s more realistic, and more satisfying, to find ways to earn indefinitely – just without the hard work.
Luke Pittard was 23 when he won £1.3 million on the lottery. Enough for him to immediately quit his job at his local McDonald’s in Cardiff, and enough – if invested wisely – for him to never have to work again.
And at first that was his plan – except it didn’t turn out that way. Within a few months Luke started to find his new life of luxury a bit dull. “To be honest, there’s only so much relaxing you can do. I’m only young and a bit of hard work never did anyone any harm.”
Eventually, he went back to his old job. “I enjoy going to work and all my mates work here,’ he said. The only change? Instead of walking to and from work, he now gets a taxi.”
Luke isn’t alone. Mark Brudenell won nearly a million pounds on the lottery and initially spent three years flying around the world on luxury holidays – but then got bored and set up his own double glazing business. He says he puts “more hours into the business than I ever did working before” and doesn’t even touch the remainder of his lottery winnings.
Roy Gibney won £7.5 million and said: “I gave up work for 14 years, but I got bored. I started a sheet metal business, and I’m fitter and happier than I’ve been for years.”
All in all, a third of lottery jackpot winners set up their own business, and almost the same amount again go back to life as an employee. And it’s not because they’ve foolishly blown it all: even if they don’t need the money, it turns out that work meets a deep-seated need for meaning and social connection.
Catching FIRE
This claim would be hotly disputed by advocates of a philosophy that revolves around escaping the world of work as quickly as possible.
Catchily entitled FIRE – Financial Independence, Retire Early – it would go from being a fringe lifestyle to a mainstreammovement in the wake of the 2007– 2008 financial crisis.
FIREites preach that you should spend a decade or two working insanely hard and saving the majority of what you earn, build up a big pile of investments, then quit work and live off that pile for ever.
The idea is basically to speed run the normal career path: by saving at far above the normal rate (it’s not unusual for hardcore FIRE followers to save more than 50% of what they earn), you can retire closer to your fortieth birthday than your sixtieth.
The trouble, as many of those who successfully FIREd themselves discovered, wasn’t the self-denial or the performance of the financial markets. It was this: the type of person who has both the type of job (a high paying, high status one) and the motivation to put themselves in a position to retire so young isn’t also going to be the type of person who enjoys unbroken decades of endless relaxation.
As one 51-year-old FIRE ‘success story’ put it in a blog post: “Now I’m living the Early Retirement dream. Guess what? I find myself fantasising about returning to work.”
A year of dabbling with badminton, joining a local book club and volunteering at the community garden later, and he did just that.
The myth of early retirement
Don’t get me wrong: there are elements of the FIRE philosophy that I strongly agree with, not least its focus on getting out of a job you hate and bringing your financial life under your own control as soon as possible.
But its fatal flaw is that it ignores the ample academic research indicating that retirement isn’t the rose- tinted dream most of us expect it to be – and can even be disastrous for our mental wellbeing.
For example, researchers from Binghamton University in New York looked at data from rural China, which historically lacked the structured pension provision available in urban areas. In 2009, a pension scheme began to be introduced that aimed to eventually cover all rural areas. But its gradual roll- out proved to be the perfect natural experiment: suddenly, retirement became a possibility for some elderly Chinese citizens but not others.
Surely, the researchers assumed, the people who retired would be happier and healthier than those who didn’t?
Not quite. In their analysis of more than 17,000 people, the researchers found that, ten years after the introduction of pensions, the rate of cognitive decline had greatly accelerated in the areas where people had been receiving the extra support. And it wasn’t just their cognitive abilities that suffered; it was their mood too. “It looks like the negative effect on social engagement [of retirement] far outweighed the positive effect of the program on nutrition and sleep,” one of the researchers concluded.
All in all, the evidence indicates that we shouldn’t find the stories of lottery winners as surprising as we do. Retirement, The Economist recently summarised, often leads to losses “of income, purpose or, most poignantly, relevance.”
Right to retire?
Except none of this has made much of a dent in the popular belief that we should build our lives around the desire to retire.
In the UK and US, policies to increase the age at which you can collect retirement benefits from 65 to 67 have been met with much grumbling and resistance. In France, more than a million people took to the streets when the government tried to increase the pension age from 62 to 64 in 2023.
And while governments are trying to push retirement age back, our general perception seems to be that mid-sixties is already rather too late: a study of Millennial Americans put the ideal retirement age at 61.
For many people, early – or at least early-ish – retirement is clearly the ultimate goal. But should it be?
The trouble is, earning is the most powerful of the financial levers we have – and so wanting to retire early means less time benefiting from this power as we try to compress our earning into as short a time as possible.
If there were another way to think about earning – one that emphasised making money without the endless grind – we might realise that there are some altogether more fulfilling (and lucrative) ways to think about our working lives.
The solution isn’t to escape the world of work as early as you can, or to cross your fingers and pray for a lottery win: it’s to find a way to sustainably live a dream life that has income- generation built into it. It’s not giving up on earning, but finding ways to earn that don’t monopolise your time.
And, fortunately, there are ways to keep on making money well into your seventies and beyond – offering all the leisure and free time we now associate with retirement, plus a dollop of extra personal satisfaction and mental reward on top.
Breaking the time–money connection
On Reddit, 279,000 people are members of a community called ‘Overemployed’. Its contributors have figured out that they’re able to meet the basic requirements of their job in half of a conventional working week – so rather than scrolling social media like the rest of us, they’ve taken on a second job to fill the other half.
Some take it even further. One user racked up four jobs, then quit one – complaining of ‘too many meetings’. Another has five ‘full-time’ jobs in tech, adding up to nearly a million dollars in combined salary.
One user summed up the sentiment of the subreddit: “don’t have to be perfect, no need to be the best, just do enough . . . And coast.”
Of course, this is only possible because they’re doing it covertly. If their bosses knew how efficiently they were fulfilling their duties, they wouldn’t be delighted – they’d be horrified, and probably cut their working days (and pay) in half. That sentiment is understandable: most of us instinctively feel that sneakily holding down two jobs at once is wrong.
When you think about it, though, if they can provide enough full-time value to satisfy two (or more) companies at once, why shouldn’t they?
It’s not their fault they’re not working at capacity: if their boss is happy, why should they ask for more work or twiddle their thumbs?
Compensation culture
The reason working two jobs simultaneously feels so immoral is our deeply ingrained sense that time is money. We’re used to compensation being based either explicitly on an hourly rate, or being paid a salary on the assumption that you’ll be working a particular number of hours.
Yet why should pay be determined by the hours you work rather than the value you provide?
If your car has broken down and it takes the repair guy five minutes to fix it, you don’t calculate a ‘reasonable’ hourly rate and try to pay a twelfth of it: you’re grateful he got you back on the road so quickly and pay whatever he demands. It took Ed Sheeran less than half an hour to write Thinking Out Loud, and he’s earned millions from that song alone. Does that feel unreasonable to you? Would you tap your toe more vigorously if he’d slaved over it for weeks?
These examples hint at another way to think about work, earnings and retirement. There is a way to keep earning money easily, without having to set an arbitrary retirement goal – and it involves breaking the connection between time and money altogether.
Admittedly, they are outliers: not everyone will achieve their level of success. But nor do they need to.
After all, if you could just earn as much as you do now while enjoying what you do and without needing to work anything close to forty hours a week, would you still feel under pressure to retire by a certain date?
The three levels of financial independence
Okay, this all sounds great – but how do you do it?
Well, I think of financial independence not as a result, but a process: one that typically involves moving through three levels.
Level 1: Embrace the connection
Inevitably, for most of us time and money start off being inextricably linked. You might only be paid once you’ve punched in and the clock starts ticking, or be required to sit in an office between certain hours if you want to keep your job (and therefore your salary). If you can work from home and sneak in the odd laundry load on company time, you’re one of the lucky ones.
But employment isn’t all bad. Think of it as an apprenticeship: a period during which you’ll have certainty about when and how much you’ll be paid, and be able to build your skills and hone your craft by getting involved in big projects with talented people. It’s a step that – even if we dream of escaping it from depressingly early on – most of us benefit from.
Even if you graduated top of your class from a prestigious university, when you move on to any real-world job you’ll start out being pretty crap at it. If you lived or died by your results, you’d probably die – so having some leeway to learn while still getting paid is exactly what you need. Even beyond the early stages of your career, there’s a benefit in learning from the people around you and getting in plenty of ‘reps’ at whatever you’ve chosen as the skill or area you want to master.
Yes, I’m painting the rosiest possible picture of the world of work here. Most people don’t float through the office door on a cloud of gratitude about all the opportunities they’re exposed to: they feel under-appreciated, sick of playing politics, and resentful.
But there are ways to maximise your opportunities in Level 1 while preparing yourself to move to Level 2: to be precise, three of them.
1: Re-frame
Most people, explicitly or implicitly, see their career as something that happens ‘to’ them, based on the actions of other people.
Your boss won’t give you a raise. You’re stuck on a dead-end project. Your ideas are always overlooked. If a better opportunity comes along, it’s pure luck.
The first step is to re-frame your career as something you’re in control of, and approach it strategically. You’re giving up a large proportion of your waking hours: what are you getting in return? If the answer is ‘not enough’, then you need to honestly assess whether you’re worth enough or whether you’re currently in the wrong place. Remember, your time in employment is your apprenticeship – and it falls upon you to get the most out of it.
What would you be doing differently if you were taking absolute responsibility for acquiring the skills you need to escape?
In the academic literature this sense of personal responsibility is known as ‘career self-efficacy’,
and research from around the world has demonstrated its powerful effects.
In one study, academics in Germany followed more than 700 people from the point of graduation, and found that high self-efficacy translated into better pay and higher work satisfaction seven years later.
This is not the same as deluding yourself that everything about your job is within your control: in reality, other people do have an influence and some things will affect you unfairly. You will, sometimes, be overlooked for a promotion because someone else has bonded with the boss over drinks after work, for example.
You don’t need to stare at yourself in the mirror and repeat ‘I am the prize!’ every morning, but merely acting as if everything is within your control will improve your results.
2: Keep learning
Your ability to break the time–money connection will rest upon the value of the skills you have developed. Some of these will come naturally from experience – but there are a few specific areas you can focus on to speed you towards Level 2, and give your earnings an immediate boost too.
One of these is to learn specialist skills that can lead you into particularly well-paying areas of your field. For example, according to a global report on the link between skills and earnings, IT professionals who earn a new certification can increase their salary by $12,000 or more. That’s one heck of a premium for taking some training courses or doing some self-study.
Similarly, a report from The Project Management Institute (who, I admit, may not be a wholly disinterested party) found that those with a project management qualification earn 22 per cent more than those who lack one. Whichever line of work you’re in, there will likely be an equivalent.
You can also develop ‘soft skills’ that transfer across roles and industries – and will also stand you in good stead if you strike out on your own when we move on to Level 2.
For example, a study from the University of California found that people who demonstrated leadership skills earlier in life earned up to 33% more as adults, even after controlling for differences in intelligence and other traits. Separately, a study of more than 42,000 people by TalentSmart found that employees with high emotional intelligence (EQ) earned an average of $29,000 more per year than those with low EQ.
How do you develop these skills? While there are formal courses and qualifications out there, the most effective way of learning is a mix of deliberate self-study (like reading books or listening to podcasts) and seizing opportunities to learn on the job.
This is why re-framing is a critical first step: by mentally taking ownership of your career, you’ll spot development opportunities that otherwise would have passed you by.
With minimal extra learning, you might even be able to take a strategic side- step.
For example, data from the US Bureau of Labor Statistics shows that journalists earn a median wage of $49,300, whereas for public relations specialists it’s $66,750. The skills involved? Very similar – I used to work in public relations, and journalists would move across to join us on ‘the dark side’ all the time, relying on their existing knowledge and networks.
3: Forget loyalty
An analysis of 18 million employment records by Yahoo Money found that job switchers routinely increased their pay by significantly more than those who stayed put.
The reason doesn’t take much figuring out.
When a company is hiring a new employee, they have no choice but to pay the market rate for someone with their desired level of skills and experience. Yet when they want to retain an existing employee, they can rely on inertia.
If someone enjoys their job and earns some kind of pay rise, are they really going to look around? Do they even know they’d earn more if they were newly hired into their current role?
Of course, happiness is important: if you like where you work, you might not want to take the risk of leaving for a role you end up hating. But you don’t need to leave; you just need to keep looking around.
For a start, actively looking will give you a sense of what you could or should be earning in your current role: if your company was hiring a replacement for you, how much would they pay? If you’re not being rewarded with the pay rises you think you should be, you can then take it a step further: be offered a role elsewhere, then ask your employer to match it if they want you to stay.
Put starkly, the key to higher earnings is to put yourself in a position where your employer needs you more than you need them. In every company there are a few people who by handing in their resignation could cause the CEO to cancel their plans for the day and throw everything at getting them to change their mind. Your aim is to be this person.
This largely comes down to solving problems that other people can’t (or won’t), and being a ‘safe pair of hands’.
The person in my company who’s risen through the ranks the fastest got there because she got the job done every single time – without drama or complaint. Every time a new area of responsibility came along it ended up with her, because we knew for sure it’d be done well. Sometimes that meant her working late, or scrambling to figure something out that she’d never done before – but it was worth it, because she made herself irreplaceable.
Making these three changes will shift the impact equation in your favour: you’ll be adding more value, and capturing more of it for yourself. The difference this makes to your earning power in the next three to five years could be enormous.
Earning is by far the most powerful lever you have – so taking a deliberate approach to your career can have a bigger impact than decades of disciplined saving or any amount of effort to transform yourself into an investing genius.
It might be that taking these steps is enough for you: you’ll be earning more, and be in a position to call the shots. This transformed power dynamic and a newly padded payslip may keep you happily clocking in all the way to the typical retirement age and beyond.
But if you do want to go further, the skills you’ve developed have set you up perfectly for Level 2.
Level 2: Loosen the connection
When Steve Jobs left Apple to start his new company, NeXT, he needed a logo. Being Steve Jobs, he wanted the best – so he approached legendary designer Paul Rand.
Rand knew his value: he demanded a fee of $100,000. There would be no consultation, and no revisions: he’d receive $100,000, deliver what he thought was the best visual concept, and that would be it. Jobs agreed – and Rand received $100,000 for two weeks’ work. (If you ask me, the logo was pretty awful, but that’s by the by.)
This is an extreme example of loosening the connection between time and money. Rand did, at some point, have to sit down and do the work. He did need to deliver by a particular deadline. But he didn’t send Steve Jobs an invoice listing the number of hours he’d worked: he was selling the result rather than selling his time.
A less extreme example of someone operating at Level 2 is my friend Richard. After twenty years working in finance roles at major banks, he struck out on his own as a consultant. He still sells his time – but as a consultant he sells it by the day, not as part of a salary. And because he’s proven himself to be able to deliver a certain result during that time, his day rate is what he likes to call ‘reassuringly expensive’. At the moment, he consults for a couple of different companies for a total of three days per week.
Every weekend is a long one, which – along with breaks between contracts – allows him to routinely rack up the type of unforgettable experiences that would normally have to wait until ‘retirement’. If his travel plans require more cash, he can take on more work for a bit – yet when he wanted to take the whole summer off and live on a Greek island, he did.
As anyone at Level 1 can attest, it’s rare to be able to achieve this level of flexibility from the outset of your career: when what you’re primarily selling is a result, you need to have demonstrated beyond doubt your ability to deliver that result on someone else’s terms before you get to do it on your own.
Trading certainty for money and freedom
Operating independently doesn’t just bring more flexibility – consultants tend to be paid at least 20% more than an employee in an equivalent position, and sometimes more than 50%.
Some of this difference disappears due to taxes and costs that would otherwise fall on the employer, but even so – operating at Level 2 gives you the potential to earn a lot more.
The trade-off is a lack of certainty, which is a big reason for why the pay differential exists in the first place. After all, you need to charge enough to compensate for vacations and time off sick (which you won’t be paid for), and to cover times when you can’t find work.
If you want to make the move to Level 2, you’ll need to plan ahead to make sure you have experience in the type of role that’s suited to being done as a contractor. Not all roles are.
In the corporate world there are a lot of jobs that exist in the context of a particular company because of the way they operate, but not anywhere else – so you could be phenomenal at it, but struggle to find other clients. There are also sectors, like investment banking or sensitive government roles, where you’ll have access to the kind of proprietary information that means an employer wouldn’t be happy to have you working elsewhere simultaneously or soon afterwards.
All this means that the roles most suited to Level 2 are those where you’re selling a distinct result or providing a widely understood and in-demand service.
Project-based work is perfect, because the defined end point means it often won’t make sense to hire someone in- house.
This is common in design, IT and marketing, as well as other fields. And although it might not seem like it, the more specific your area of expertise, the better – because you’ll be one of very few people who can be hired to solve a specific problem.
For example, my friend Mark is one of about five people in the country who understands an ancient programming language that major banks (worryingly) still rely on. This means he can pretty much name his price – whereas if he looked for work as a generalist IT contractor, he’d be competing in a deeper labour market with clearer norms around pay.
Moving on up
Once you’re in a role that lends itself to consulting, the easiest way of getting started – and an extremely common one – is to get hired as a consultant by the company you already work for.
But beyond that first role, you’ll need to put yourself out there. This takes you into the unavoidable and often uncomfortable world of ‘business development’: speaking to other people in the industry, showcasing your expertise, and letting it be known that you’re available.
For most roles there are agencies and recruiters who can help find you work, but this isn’t something you want to rely on. As time goes on, finding new roles becomes easier because you build a larger pool of colleagues you’ve worked alongside who can mention your name when something comes up: among the many consultants I know, word-of-mouth is by far the most common way to find work. This may sound extreme, but you might even need to start using LinkedIn…
I hope I haven’t made this transition sound straightforward, because it’s anything but: it’s scary to voluntarily give up a secure income stream and not know when you’ll get paid again. But once you’ve established yourself, Level 2 is a pretty great place to be.
There’s nothing to stop you from hanging out at this level for ever, with no need to think about retirement as a one- off ‘event’ because you’re free to scale your volume of work up and down to match your energy levels and fit in with whatever else you want to do.
But if you’re up for taking another leap, you can graduate to Level 3: breaking the link between time and money altogether.
Level 3: Break the connection
The core requirement to reach Level 3 is to be able to deliver a result in a form that’s completely independent of your own time.
For example, if you’re a physical therapist specialising in shoulder pain, there’s only so much you can get paid for a session of digging your thumbs into someone’s trapezius – and only so many sessions you can do per day before you develop serious RSI.
But what if you could take your knowledge and package it up into a book that allowed someone to get the same relief at home by using some simple tools and following the steps you’d take?
By doing so, you’ve largely broken the link between time and money: you may still need to promote it or be involved in its distribution, but you could take weeks or months off without your income being affected. You could even formalise your unique ‘method’ and teach it to other therapists – requiring them to pay training and licensing fees. Eventually you could end up with multiple divisions and product lines, and hire dedicated teams to help with marketing, distribution, operations and finance.
There’s a limit – albeit a high one – to how much even the most sought-after professional (such as Paul Rand and his logo design) can earn in a year, and only so many years they can consistently deliver for.
But once you’re selling a product that doesn’t require your personal input, there are no such constraints. You build it once, then sell it countless times.
When time does not equal money
There are ways to break the time–money connection in almost every sector.
For example, Rachel Karten worked in social media at some of the most popular food and recipe websites. Then she made her move to Level 2 – transitioning to independent social media consulting, helping other companies to achieve the same results that she’d previously generated in-house and passing on her knowledge so they could continue doing it even after she’d moved on. Finally, she started Link In Bio – a paid newsletter and private community that teaches those same techniques at scale without Rachel needing to show up and do it one-on-one by the hour.
That’s Level 3. Rachel is now estimated to be making more than $200,000 per year, and if she wants to earn more it won’t necessarily require any more of her time.
Or take Ben Collins, a former forensic accountant. I don’t know much about accounting, but I know it involves a lot of spreadsheets – and after quitting his job he started picking up consulting work showing companies how to build performance-tracking dashboards in Google Sheets. Two years later, he packaged up this knowledge into a course that people can buy online, meaning Ben gets paid at all hours of the day and night, even when he’s out hiking with his family. Even if Ben never creates another course or takes on another consulting gig, he’ll keep on getting paid.
In each case the skill involved and delivery mechanism is different but the core principle is the same: identifying a result you know how to achieve and other people want, then packaging it up in a way that doesn’t involve your time every time.
That doesn’t mean once you’ve created something you’ll never work again: especially in the early days, most people find themselves working harder than ever to grow and stabilise a business of this kind.
But there are two important differences compared to working equally hard at Level 1 and Level 2.
Scale on your schedule
The first is that the financial return on your time can be dramatically higher: if you slave away late into the night on a marketing initiative that improves sales by 10%, you’ll continue to reap the rewards of that 10 per cent increase for years to come. Potentially, you can end up earning thousands of pounds for one hour of work.
The second important difference is you can do all this entirely on your schedule: not only can Ben and Rachel work on any days and times that suit them, they can also take extended blocks of time off without foregoing any income or asking anyone’s permission
Say that you build a tiny one-person business that brings in £1,000 per month (£12,000 per year). That probably doesn’t sound life- changing. But if you assume that a financial investment in real estate or the stock market would pay you an annual return of 5 per cent, your £1,000 in monthly income is equivalent to having £240,000 saved up and invested.
Is it going to be quicker and easier to package up a result and generate £1,000 per month or to build up nearly a quarter of a million pounds in savings?
Personally, I think it’s the former – and it also gives you a far higher level of control
With that money coming in independently of your time, who cares if the markets don’t perform so well or your house doesn’t go up in value as much as you’d hoped?
Work less, earn more
For the purposes of getting the concept across, I’ve made the process of breaking the link between time and money sound like a simple, predictable progression.
In reality, it’s no such thing. Whatever you try first probably won’t succeed. If you plug away for years at something – or skip between multiple ideas – without gaining any traction, that’s entirely normal.
But this isn’t a case of either/or: once you have the ability to provide a result that people want, you can work on your Level 3 solution simultaneously with Levels 1 and 2.
Because it will inevitably take time to figure out, the earlier you start the better – even if that just means spending a few hours per week learning new skills, researching the market and taking your first steps. And even if the worst happens, and you never succeed at all? You still haven’t really lost: the skills you’ll learn from trying will make you more valuable in your career and so you’ll position yourself for a boost in pay compared to your less enterprising colleagues anyway.
By progressively weakening the connection between time and money – and perhaps eventually breaking it completely – all concerns about retirement become irrelevant.
There’s no need to scrimp and save to extreme levels. No worries about your investments failing to perform. And no need to step off the career ladder only to suffer the mental downsides of a retirement that wasn’t, in fact, quite as rewarding as you’d expected.
Thanks to Rob for presenting us with some very actionable food for thought. For more of his myth-busting, pre-order a copy of Seven Myths About Money over at Amazon.
The yellow metal has been on a tear for years. Gold bugs and survivalists – not to mention passive investors with well-diversified portfolios – sitting on big gains might well now be wondering how gold is taxed.
It isn’t always thus. Sometimes gold is in the doldrums.
For example, the gold price also soared after the Global Financial Crisis. By the peak in 2011 it seemed as if paranoid people with bars of bullion buried in their back gardens might really inherit the Earth.
This was the culmination of a tremendous bull run that saw the gold price multiply five-fold from the late 1990s.
And so – ever quick to jump on a bandwagon – Monevator explained how gold is taxed in the first version of this article in… December 2015.
Oops! By then gold had slumped. The price was down more than 40% from its post-GFC highs.
Remember: investing is cyclical. With knobs on, as my old man used to say.
Golden years
Happily for my never-ending quest for bragging rights over my co-blogger, in my 2015 article I wrote:
…call me a contrarian 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 the price made the nightly news.
Not very much gold, mind.
I’m thinking I’d like 2-5% of my portfolio in gold. For insurance and diversification for the long-term.
Happily, the gold price has nearly tripled for UK investors since those dull December days of late 2015:
Source: Gold.co.uk
Less happily, I’ve typically owned closer to the 2% end of my allocation range.
Still, better than a kick in the teeth, as my old dad also used to say. (And which sounds pretty ominous, typed out like that!)
Fool’s gold
The point is capital gains tax (CGT) on gold could now be a very real issue if you bought and held gold from the lows and you want to sell.
Painful, too, given today’s much lower CGT allowances.
To quote one last time from my article of nine years ago:
Because of how tax reduces your investment returns, I’m looking for the best way to invest in gold to avoid a massive tax bill in the future.
If you were a buyer then I hope you did so too.
Let’s recap.
Tax on gold gains
How gold is taxed isn’t a simple matter. There are always quirks with taxes.
Indeed with the UK tax code clocking in at over 21,000 pages, you could argue the whole system is one enormous quirk.
And how gold is taxed can be as confusing as everything else tax-related.
The specific tax on gold gains you’ll pay depends on:
- What form of gold you own
- Whether you have it in an ISA or a SIPP – or even under your mattress
No income tax, no VAT
What kind of taxes on gold are we talking about?
The good news for all you budding oligarchs is there’s still 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 just for 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 an investment point of view. Though hardly 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. Assuming it’s one of the few not intent on squandering every last dollar on discovering harder to process deposits miles beneath the Earth’s crust.
Lucky enough to get a dividend? It will be taxed like dividends from any other company.
Finally, there’s no VAT to pay when you buy gold bullion or gold coins for investment purposes. So no worries there, either. (Well, almost. See below.)
Weirdly, VAT is payable on purchases of silver at the standard 20% rate. Perhaps the gold conspiracy theorists are onto something?
Capital gains tax and gold
So far so good. But there’s one flavour of UK taxes you’re very likely to face with gold: Capital Gains Tax.
I’m going to assume you understand the basics of CGT. If you don’t, please go and read our quick primer and then come back ready to roll with the rest of us high-flyers…
*twiddles fingers*
Done that? Great!
So now we all know that CGT is a tax levied on the gains you make when you ‘dispose’ of – usually by selling – certain investments.
And that includes – in some forms – gold.
“Some forms” I say?
Yes – because not all gold is taxed equally.
Quirks, remember?
In particular certain gold coins are considered legal tender in the UK. Being legal tender makes them free of CGT.
Look for coins produced from the Royal Mint that qualify as legal tender.
According to The Royal Mint:
…all gold, silver and platinum bullion coins produced by The Royal Mint are classed as CGT-free investments.
This includes gold and silver Britannia coins, Sovereigns and the popular Queen’s Beasts range.
British gold sovereigns are typically recommended because they can be appealing to collectors as well as for their gold content. This means there’s two ways in which your gold investment can hold or increase in value when you buy coins.
Note it’s the legal tender aspect that makes these coins exempt from CGT. Not their size or handiness.
Beware this VAT trap
If a coin is bought as an 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, then it may be judged as attractive as a collector’s item – and so become subject to VAT.
According to HMRC:
It does not matter that an individual coin is of special interest to collectors, if the usual price of the coin type falls within 180% of the value of the gold contained therein, all coins of that type will be exempt.
If a coin type is usually valued at more than 180% of the gold value, because of its interest to collectors, but an individual coin is in such poor condition that it is worth less than 180% of its gold value, that coin (like others of its type) will be subject to VAT at the standard rate.
Confused? I am a bit. If you’re into numismatics – that’s the study of coins, currencies, and other payment methods – then you’ll need to do more research to see if VAT is payable on your kookie coins.
For similar reasons, don’t invest in gold via gold clocks or wedding rings (the latter for all kinds of reasons…) as you’d be potentially liable for VAT when you buy and for CGT when you sell.
But if you’re simply buying British gold sovereigns to stash somewhere safe then you’re all good.
ISAs and SIPPs and gold
Aside from coins, your best bet for sidestepping CGT on gold is to hold your gold in an ISA or a SIPP1.
But this is where it gets tricky. That’s because some ways of investing in gold that are attractive from one perspective are not so appealing – or even possible – from another.
For instance, some people want to own real physical gold, not so-called ‘paper gold’ like a gold ETF. (Or an ETC, or Exchange Traded Commodity).
They often want physical gold specifically because they are hedging against disruption or disorder to the financial system. A notional ETF holding in an online nominee broker account is presumed to be less useful than a bit of shiny metal in your hand if we head back to the Stone Age.
However unless you own a private fort to fill with British sovereigns, buying physical gold in size will probably mean using a gold platform like BullionVault or The Royal Mint2. Like this your gold is stored in a vault somewhere safe – say under the Swiss Alps.
Such gold bullion is liable for CGT. It also 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. This makes it easy to gain exposure to the gold price while shielding your investment from tax – so long as you don’t mind using an ETF.
Perks of a pension
Just to further confuse matters, some of the physical gold platforms do enable you to hold gold in a SIPP, depending on your provider.
BullionVault, for instance, works with several SIPP platforms.
It notes that buying gold through your pension could mean the government pays up to 45% of the cost of your gold, thanks to tax relief.
Doubtless that’s extra appealing to a certain kind of gold fan.
Golden summary
You’ll need to think about how to use your own tax shelters to protect your personal gold hoard from the taxman.
But here’s a handy table of how gold is taxed:
| 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 ETFs/ETCs | Yes | Yes | Yes |
| Gold jewelery | Yes | No | No |
| Gold teeth* | Oo aar! | Oo aar! | Oo aar! |
*If you want to try to tax a pirate (or a gangsta rapper) on their bling dental work, be my guest.
Golden rules of thumb
I’d suggest these solutions best fit various use cases:
- Owning a modest amount of gold outside of ISAs and SIPPs – investing via UK gold coins that are legal tender is best. You can buy CGT-exempt sovereigns from The Royal Mint. If you store within the Mint’s own ‘Vault’ then it can buy them back later. See its FAQ.
- Gold in an ISA – low-cost gold ETFs / ETCs are best.
- Gold in a pension – gold ETFs / ETCs again, or you could consider one of the qualifying gold bullion providers who partner with UK pension schemes. I’ve held some gold with BullionVault for over a decade. The Royal Mint is again another option.
- Owning entire gold bars like a bond villain – you’ll want direct ownership with storage in a suitable fortified bank, or else to own a certain monetary value of real physical gold with the likes of BullionVault… But again remember you will be taxed on capital gains with this option, unless you use a SIPP.
Unless you are one of our central banker readers, 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.
Golden advice
Please note I’m far from the pub bore on gold. Also I’ve never held gold in a pension scheme. (I read up on it for this article.)
Do your own research and take professional advice if needed. Avoid putting money into a dodgy scheme, or investing your pension into something that ultimately hits you with a tax bill.
On the other hand, if you’re an expert on the minutia of investing in gold, then hands-on tips in the comments below would be appreciated.
(Note: Financial conspiracy theories or advice on getting out of fiat money before the great riots of 2033 are not really our thing on Monevator, thanks.)
Watch out for costs with gold
Finally do remember that while taxes can severely reduce your returns, so can plenty of other things.
In the case of gold, that could include high dealing costs, ongoing storage costs, insurance fees, and even theft.
Oh, and the risk you might decide to sell all your equities and even your house to buy yet more gold because you think Britain is going bankrupt. (People can go crazy about gold.)
Creeping costs
As usual, it’s over longer time periods that the smaller charges add up.
Let’s say storing gold coins costs you 1% a year versus 0.25% in annual costs for a gold ETF.
Let’s also suppose the gold price delivers an annualised 5% a year gain over the next 20 years.
You decide to split your £20,000 investment in gold between gold coins and a gold ETF in an ISA, like any good risk-averse investor.
After two decades:
- The £10,000 in gold coins is worth £21,911
- The £10,000 in a gold ETF has grown to £25,298
Quite a difference! Enough to eat into a chunk of the CGT savings you’d get from going down the coin route compared to the ISA-and-ETF option.
To be sure this is a simplistic example. The figures are all illustrative. And in reality the costs for storing gold coins probably wouldn’t compound at the same rate as the price of gold.
(Also you can’t ‘clip’ gold coins to pay your fees, so those fees might have to be paid from money from outside of your gold hoard. That could alter the maths).
But you get the picture.
Also, 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 deep below Mayfair. If you do then by all means squeeze a few bars of gold into the space behind Aunt Agatha’s tortoiseshell sideboard and cut your costs.
Equally, if you’re a daredevil risk-taker happy to hide your gold coins in a biscuit tin beneath your aquarium, then you can escape storage costs altogether. Few would recommend it though.
Costly trade-offs
Note that trading costs are chunky for some forms of physical gold investment.
That’s because – unsurprisingly – people who buy gold want to know it’s really gold, not just foiled-covered chocolate coins.
It costs money to get gold verified3 which means higher turnover costs.
Alternatively you can keep gold in a so-called accredited facility, some of which I’ve cited above. This way the gold never moves, so its authentic status remains intact. But then we’re back to higher storage costs.
Gold and tax: the takeaway
Think about how gold is taxed, how long you intend to hold it, and in what circumstances you’d want to get at it.
That way you can best decide on the most tax-efficient investment method for you.
Perhaps the best thing to do, as usual, is to diversify your gold across a range of different forms and platforms – particularly if you’ve got a large portfolio to manage. Not least because tax rules can change.
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 will continue to build my own gold hoard – though I’m in no rush!
Note: This article is about how gold is taxed. It’s not about how politicians could confiscate it all if they wanted to. Or how ETFs are as bad as shares compared to a solid coin in your hand. Nor about how anyone who doesn’t swap everything for gold is going to die a pauper, nor about Bitcoin, nor about how Warren Buffett thinks you’re an idiot if you buy one ounce of gold. Please keep comments on-topic. Again, the BullionVault links are affiliate links. I may get a small bonus from any new signers – but it doesn’t cost you anything. It’s just a marketing cost to them. Hoard safely now!