What is VAT?
Value Added Tax is a type of sales tax paid by consumers. It is added as a percentage of the sales price. If the end consumer is a VAT-registered business, it can reclaim the VAT element of the total price.
VAT, in various guises and names, is common around the world. It was introduced in the UK when we joined the EEC (European Economic Community) in 1973, and replaced a form of purchase tax. VAT in the UK is currently charged at 20% of the net price.
Will I pay VAT on gold bars and coins?
This article focuses on the tax situation in the UK, so the answer to this question is no – gold bullion is not subject to VAT. Gold bullion is regarded as investment gold under UK tax law and is therefore exempt.
In fact, this also applies to the European Union. The EU decided to end VAT on investment gold because some countries were only applying lower rates of VAT, to gain an advantage in the marketplace. Eliminating VAT on gold bullion throughout the EU levelled the playing field. Realising this left the UK at a competitive disadvantage as we were still charging VAT on investment gold, the UK Government followed suit shortly afterwards.
Is VAT payable on silver?
Yes, even silver bullion. The VAT exemption for investment gold does not extend to cover silver or other precious metals such as platinum, so silver is therefore subject to VAT at the current rate.
Having said that, it is possible to invest in silver bullion without paying VAT. The drawback is that your silver cannot physically be in your possession; it must be stored in a bonded warehouse outside the EU. If you change your mind and decide to take delivery of it, you'll then have to pay the VAT.
This is fine if you are happy to treat your investment purely as a ‘paper exercise', buying and selling it remotely. However, many investors prefer to know precisely where their investment is, whether that's at home or in an accessible bank vault. Storing their silver in some distant warehouse is not something they feel comfortable with.
What if I'm VAT registered?
As we've already mentioned, VAT-registered businesses can reclaim the VAT element of an item's purchase price. If you run a VAT-registered business and think you should be able to get back the VAT on your silver coins or bars, we recommend you check with your accountant. We are unable to give you specific financial advice for your situation, as we're not financial service advisors or accountants.
What if buy silver coins from the Royal Mint?
Unfortunately the same tax rules apply: silver coins made by the Royal Mint are still subject to VAT at the current rate.
Are other taxes payable on gold and silver bullion?
The other tax you need to consider when investing in gold or silver bullion, is Capital Gains Tax (CGT).
Unlike VAT which is a sales tax, CGT is a tax on profits. It applies to profit you make when you sell, give away or otherwise dispose of assets in any given financial year, in excess of the CGT allowance, which is currently £12,300.
This means that if the profit you make is less than £12,300, you won't pay CGT. But bear in mind that the profit is based on the difference between your sale price and original purchase price. So if bought, say, a batch of silver bars several years ago and gain more than £12,300 profit selling them now, CGT will be payable on that profit.
The other point to note is that your CGT allowance is for all profits from assets in a single year – so if you made £7,000 profit selling silver bars and another £7,000 profit selling a classic collector's car, both in the same year, you'll pay CGT on the amount over your CGT allowance. At the moment, the CGT rate is 20% - 28%.
Not all gold or silver is subject to CGT, and we'll cover the exceptions further on in this article.
Please also note there are some other claimable reliefs from CGT. Again, we are unable to provide specific financial advice, so please check with your accountant.
So is silver not worth investing in?
Even though most silver coins and all silver bars are subject to VAT and CGT, that doesn't make silver bullion a poor investment. Instead, think of silver as a long-term investment, where you're prepared to wait until its value has increased sufficiently to at least offset the VAT you've paid.
We say long-term, because silver prices can fluctuate dramatically (much more so than gold) and a sudden drop can seriously diminish your investment potential. Conversely, silver prices can rise equally spectacularly. Back in 2011, silver climbed 175% to reach a record price of nearly $50/oz. (though fell markedly soon afterwards).
Gold tends to rise relatively slowly yet steadily in value, whereas silver does provide the opportunity to make greater profits. That's why it makes sense to have a diversified investment portfolio including both gold and silver, giving you the chance to cash in on silver when the market is favourable, with the reassurance that you should be able to rely on gold to provide a safe if rather less spectacular dividend. As with any investment, it pays to watch market trends closely.
What constitutes investment gold?
To recap, VAT is not payable on investment gold, although in some circumstances CGT is. We'll explain that next.
First, to clarify investment gold, HMRC defines it as:
- gold of a purity not less than 995 thousandths that is in the form of a bar, or a wafer, of a weight accepted by the bullion markets
- a gold coin minted after 1800 that is:
- of a purity of not less than 900 thousandths
- or has been, legal tender in its country of origin
- of a description of coin that is normally sold at a price that does not exceed 180 per cent of the open market value of the gold contained in the coin
- an investment gold coin as specified in Investment gold coins (VAT Notice 701/21A).
There are some exemptions which it's best to check on the appropriate HMRC web page.
Which is a better investment, gold bars or gold coins?
This is a topic we have explored in our separate article ‘Gold Bars vs Gold Coins', but we'll recap briefly here.
The main point in the comparison between gold bars and gold coins is that all gold bars are subject to CGT, but not all gold coins.
Both gold bars and gold coins offer a wide and practical choice. Gold bars are available from one gram to a mighty 400 troy ounces or 12.4 kilograms, whilst gold coins have been produced over many centuries in numerous countries, and with a wide range of values. Banks and nation states generally store their gold as bars, but numismatists and many investors are more attracted to the variety offered by gold coins.
Remember that HMRC regards investment gold coins as those minted since 1800, with a purity of at least 900 thousandths or that have been legal tender in the country where they were produced.
Legal tender is the key issue here. Whilst those exotic, foreign gold coins are undoubtedly appealing to gold coin collectors, they will still be subject to CGT. To be CGT-exempt, gold coins must be British legal tender, with a nominal face value – even if it's highly unlikely they will ever be used in circulation. No one would use them for their shopping, since the face value is always less than the coin is actually worth.
This means, then, that CGT-exempt coins are those produced by the Royal Mint. Of these, the Gold Sovereign is the oldest and best known, whilst the Gold Britannia has greater purity and is therefore more valuable. Other gold coins in the Royal Mint range are also officially legal tender and so are CGT-free. These include the Gold Standard, the Queen's Beasts and the Lunar Collection.
We mentioned earlier that most silver coins are subject to CGT. That of course means some are not, and these are the silver bullion coins from the Royal Mint: the Sovereign, Britannia, Lunar and Queen's Beasts ranges. The reason for their exemption is that they are also legal tender.
Making your choice
Going back to our original question, ‘Is gold and silver bullion subject to VAT?' the straightforward answer is No, for investment gold bars and coins and Yes, for silver bars and coins.
Naturally there are other aspects to consider, which we have touched on in this and other Britannia Coin Company articles. Your final decision may rest on how important the VAT aspect is for you, plus the other factors involved. Whatever coins you're tempted to invest in, the Britannia Coin Company can offer you an extensive range to choose from.