A Guide To VAT, Capital Gains Tax and Gold For the UK Investor
VAT AND GOLD
The Good News is that there is no VAT (Value added Tax) payable on investment Gold. So the next obvious question is ‘What is investment gold?’
Investment gold is classified by HMRC as:
1. Gold bullion which
(a) Has a purity of no less than 995 thousandths
(b) Is in the form of a bar or wafer
(c) Is of a weight accepted by the bullion markets
2. Gold coins minted after 1800 that:
(a) Have a purity of not less than 900 thousandths
(b) Are or used to be legal tender in their country of origin
(c) Is of a description of coin that is normally sold at a price that does not exceed 180% of the open market value of the gold contained in the coin
3. An investment gold coin as specified by HMRC (Notice 701/21A Investment gold coins). HM Revenue and Customs has produced a comprehensive list of all the coins which they consider to be investment gold coins and are therefore exempt from VAT. Click here for the complete list.
The information above might sound a little complicated but what is basically means is that any gold bullion or gold coins you buy in the UK or EU for investment purposes is completely VAT free.
CAPITAL GAINS TAX AND GOLD
Capital Gains Tax (CGT) is usually paid on the profit of something that you sell. Most assets are liable to CGT when you sell them and gold is no different. The only exception as far as we can tell is that capital gains tax is not liable on British legal currency. This means that there is no CGT payable on Gold Britannia coins, British Gold Sovereigns or Gold one, two or five pound coins.
Before you buy gold coins or gold bullion from any dealer you need to understand how the price of gold is worked out. You will then have a better understanding of how much you should be paying for your gold.
What is the spot price of gold? – the ‘spot’ price is the number you will see quoted in the financial pages of the newspaper and on the internet. To find out the current spot price you can have a look at the bullionvault price chart. The spot price of gold is often quoted in USD so you will need to take exchange rates into account when making your calculations. Most dealers will sell to you in Sterling if you are buying in the UK or on the internet. Be aware that the price of gold is constantly fluctuating so you will need to look it up on the day you make your purchase.
What is the premium for gold prices? – The premium is the difference between the spot price and the price any dealer is charging for their gold. This is basically the dealers profit. The premium will vary a lot depending on what sort of gold you are buying and where you are buying it from. It also depends on how much gold you are buying. In general though the premium will range from anywhere from 0.1% and 10%. If you are buying gold coins from a local dealer you can expect to pay around 5% -10% over the spot price, although you might be able to get it as low as 3% if you shop around. If you invest in gold via an online broker such as Bullionvault the premium will only be 0.8% which is probably the lowest price around today. This gets even lower if you are buying large quantities of gold.
REASONS TO BUY GOLD
Since 2001 the price of gold has risen approximately 400% having just completed the eleventh year of gains. There are a lot of experts who expect further price rises during the course of 2012 and are positive about the outlook for Gold. With this in mind we have listed what we think are the top reasons why Gold ought to pass the $2000 per ounce mark this year and why you should seriously think about buying gold as part of your investment portfolio.
Gold As A Safe Haven – Traditionally, gold is purchased by investors as a safe haven when the financial markets are experiencing turmoil. With the massive debts that countries around the world are having to deal with and the serious problems faced by Europe, buying gold is seen as an alternative to holding currencies such as the Euro and the Dollar. While the uncertainty over how to resolve the debt problems continue, the price of gold is likely to rise.
Supply Is Limited – The amount of physical gold available to buy is falling. This is in part due to Chinese and Asian investors who are unlikely to sell their holdings, but also due to the renewed interest from the Central Banks who are likely to hold onto their Gold for years to come. A limited supply of gold and a reduction in the amount of physical gold available to buy should lead to a rise in the price of gold.
Inflation – Inflation means that a lot of countries have extremely low interest rates at the moment. As a result, money you have invested in savings accounts is worth less as time goes by. Investors are therefore looking to gold as a means of preserving their wealth. If central banks print more money as they try to reduce inflation, the demand for gold will increase leading to higher prices.
Increased Demand – Over the last two years, the central banks have increased their holding of gold. This is particularly true of the central banks from emerging economies who are investing in Gold as an alternative to the US dollar. During the first 11 months of 2011, central banks such as Turkey and Russia purchased 344 tons of gold between them. This increase in the demand for gold should lead to an increase in the price of gold.
There is a lot of volatility in the price of gold with big upswings often followed by big downturns. Although there is a rising long term trend you should do plenty of research before investing in any form of gold bullion to make sure it is the right investment for you.
From Bloomberg News – Goldman Sachs Group Inc. (GS) is staying “overweight” on commodities as a rebound in demand revives speculation of shortages, with gold a favorite for 2012 as investors seek a hedge against Europe’s debt crisis. Read More……….
Gold prices have been skyrocketing since 2002, rising from $300/ounce to over $1900/ounce in September of 2011. Since their high in September, prices have receded back to close the year at over $1566/ounce, a 9.6% increase in the price of gold for 2011. Read more: http://www.digitaljournal.com
From the Wall Street Journal – NEW YORK—Gold rebounded Friday on the last trading day of 2011, as December’s month’s steep declines drew some opportunistic buyers back to the rattled market. Read More….
Reuters Dec 14 2011 – Gold tumbled to its lowest level since early October on Wednesday, set for its weakest monthly performance since September, as a weak euro and a shortage of dollar funding over the year-end prompted investors to sell aggressively. Read more……….