Are Gold Coins the perfect tax free investment?
Published on June 1, 2011
There is so much choice in the world of bullion and some is more tax efficient than others. Today we’ll discuss the tax side of bullion ownership. The gains and how to make them are for another post.
All investment metal comes as either ingots, bars and plates or coins and rounds. And I am not interested in ‘paper’ metal – ETF’s and the like – because they are financial contracts based upon the price of the underlying commodity. They are not gold, they are contracts. The differences between ingots and coins are discussed in another blog so let’s look at the tax advantages of coins.
Bullion – or investment grade precious metals, as they are otherwise known – only provide gains. Capital Gains are what we’re talking about and that’s the tax you’ll be liable for upon their liquidation - CGT. Bullion coins don’t provide any income (you have to buy and sell them for that), they don’t send you an annual statement and there is no-one to call to see how your portfolio is doing. Bullion requires a little responsibility on your part which is great because when it comes to profits, it’s all yours. And if you play your cards right, there are some tax advantages available and this is where you really start making a healthy profit.
As we’re in the UK, the good news is that any coin that fulfils the requirements of ‘Legal Tender’ is exempt from Capital Gains Tax (CGT) because it is ‘currency’. So what’s the CGT rate?
- 18 per cent and 28 per cent tax rates for individuals (the tax rate you use depends on the total amount of your taxable income, so you need to work this out first )
- 28 per cent for trustees or for personal representatives of someone who has died
- 10 per cent for gains qualifying for Entrepreneurs' Relief
And that’s straight from the HMRC website. So investing in legal tender can save you 28% straight away! It gets better – there’s no VAT! It’s a gold coin and treated a currency so neither VAT or CGT apply! What? You want another benefit? OK, there's no income tax to pay either because the increase in value has not been derived by 'work' - by definition it's not income and the money you used to buy the coin was 'tax paid' in the first place. So no income tax. Is that enough? Good.
So what coins should you be looking to buy? What coins are ‘currency’? In the UK, the coins you should consider are Gold Sovereigns and Gold Britannias and you can buy them here at this website. You pay a premium at the point of purchase because of their manufacture and tax advantages but you should be able to reclaim that premium when you sell them.
The other advantage to these coins is that they are an ideal way to store wealth, they are 'portable' and can be gifted with incredible ease which also makes them inheritance friendly too! It raises the question “why would anyone store their wealth in a bank”? It’s a good question! Using Gold Britannias makes much more sense.
So what about the other coins? Coins like Krugerrands, Eagles and Pandas? Well, they're round and made of gold but they are currency from another country so their tax situation exists in South Africa, America and China respectively and not here in the UK. Here they take the legal position of a ‘token’ – think Stanley Matthews’ head on a round disc and it’s about the same thing. Just because it’s round and shiny a coin it does not make. On these shores (on-shore) these tokens are seen by the taxman as pretty lumps of gold. They’re taxed as bullion and that means CGT. Off-shore is a different matter completely.
And i’ve got some good news for you and your accountant. Are you ready for this? Coins such as Krugerrands and Eagles can be considered as ‘chattels’.
Chattel – noun
1. Law. A movable article of personal property.
2. Any article of tangible property other than land, buildings, and other things annexed to land.
3. A slave.
So a ‘chattel’ is a piece of property which is tangible and portable. The benefit to you is that any profit you make from liquidating your ‘chattel’ is exempt from CGT as long as you don’t sell it for more than £6,000. Brilliant! And it gets better because if you did sell it for more, you can claim a reduced scale chattels exemption! As I say – talk to you accountant and if they don’t know this stuff then get a new one.
Keep all this within your CGT allowances and you can make a lot more profit.
Happy, tax free investing to you all
Point to note – I am a bullion dealer. I do this for a living. What is written here is for your education and should not be taken as ‘advice’. If you act then take some responsibility for your actions.