Gold News

UK Gold Coins, Bullion Bars and the CGT Red Herring

Revealed! The heavy price of 'investing' in CGT-free coins...
 
GOLD BULLION has rarely traded higher for UK investors and savers, writes Adrian Ash at BullionVault.
 
Only on 7 days in history, in fact.
 
The last and only other time gold bullion prices traded up here in British Pounds was summer 2011, back when the global financial crisis peaked with the near-collapse of the Euro, the US debt downgrade, and the worst rioting across England of modern times.
 
Now the UK's rising debts, plus the outlook for weaker growth and falling interest rates, are conspiring with the relentless Brexit mess to push down Sterling as gold sets multi-year highs in Dollars, Euros, Yuan and everything else.
 
Did you miss this moonshot in UK gold prices? If not, how best to invest in gold today?
 
"A loophole exists," whispered The Telegraph after a nudge and a wink last month, "that allows gold investors to dodge capital gains tax (CGT) altogether.
 
"The tax is not applied to any British legal currency, which means that gold Sovereigns, gold Britannia coins and silver Britannia coins are exempt, regardless of how much they increase in value."
 
Never mind that, unlike silver bullion bars held for you by professional market members, silver coins carry 20% VAT sales tax when you buy – money you cannot reclaim when you sell.
 
Because, The Telegraph goes on, "Those who invest in gold bars, in contrast, are liable to pay tax on their profit, potentially costing them thousands of pounds."
 
Note that "potential". Also note the reality...
 
Spot gold rises 50% in 3 years.
What % gain do you make?
 
Source: BullionVault via leading UK retailers
 
In gold bullion, larger tends to mean cheaper. So between the 7.3 grams of fine gold in a Sovereign and the 1 Troy ounce in its CGT brother the Britannia, we've taken prices for the larger unit...vainly hoping to find a good deal.
 
Because once you account for just how expensive the UK's native gold bullion coins are to buy and to sell, the promise of tax-free gains looks much less appealing.
 
Indeed, the allure proves yet more of a red herring than Boris Johnson's vacuum-wrapped distraction in the Tory leadership race!
 
Sure, you might find better prices – somewhere, somehow, some day – than those used in the table above. Our survey of leading UK retailers' quotes for CGT-free Britannia gold coins is neither exhaustive nor independent. Do your own research. Clearly we have skin in this game.
 
But the big game at risk of being shot, skinned and roasted could be your savings if you quack at the "CGT free!" promise of gold Sovereign or Britannia coins without researching things for yourself.
 
In fact, in our table above, we have undercooked the potential net returns available to gold investors using BullionVault to trade wholesale metal – held in professional-market large gold bars – starting from as little as 1 gram upwards.
 
Because while big gains for UK taxpayers face up to 20% capital gains tax – if they reach over and above your total £12,000 personal allowance ( subject to change etc etc) – you don't need to take all your profit in one go, nor without offsetting losses on other assets.
 
Sensible CGT management might, for instance, see you take and report losses on stocks and shares that same year. (Gold has tended to rise when the FTSE went down. Fully 96% of the time on a 5-year horizon in fact.) Or you might simply take some money off the table every now and again, taking advantage of more than one year's personal CGT allowance by splitting your sales either side of the April tax-year deadline.
 
What's more, the BullionVault figures above include a vital factor which the Britannia coin data do not:
 
Secure storage with insurance included.
 
On BullionVault we believe these costs are the most effective you'll find, ensuring your security inside industry-accredited storage for as little as £3.20 per month at current exchange rates.
 
But for Britannias or Sovereigns? Where might a £10,000 investor, never mind a quarter-million-pound buyer, hope to keep that bag of gold coins? How high might your home-contents costs jump when you declare those coins to your insurer? When, where and by whom will you get an insurance-rated safe concreted into your walls?
 
Oh, and how much hassle will you face when you come to sell? Google or ring round the UK's retailers to try and find best price? Dig up your coins from the garden, then drive them across country? Post them (recorded delivery of course)? Royal Mail won't insure contents above £2,500 per packet...so divide that into your potential resale value, and multiply that number by the £10 or more cost of each posting. Again, you can dodge all this grief by buying and holding physical bullion inside secure, specialist storage, ready for resale the instant you choose 24/7 rather than just when the coin shop is open.
 
Bottom line? A couple of gold coins, close to hand, may of course prove useful in the event of social or economic meltdown. They'll sure look pretty and shiny meantime.
 
But on the dealing spreads quoted by leading UK retailers today, it's hard to call gold coins an "investment", with or without the smoked kipper of needing to "dodge" CGT.
 
Sensible gold investing, perhaps secured outside the UK...away from the threat of exchange controls should this drop in the Pound turn into a crisis as Halloween's Brexit fright nears...starts with reviewing all your options and potential costs.
 
Make sure to think everything through. Because just like the terrible dealing spreads on Sovereign or Britannia coins, CGT is a cost which the vast bulk of gold investors need never incur. Gold has rarely gained more than 50% over any 3-year horizon, and so the typical BullionVault user – starting with around £10,000...some 5-10% of their investable savings outside pensions and property – won't owe the taxman a penny on gold if that rate of gain applies.
 
For bigger investors, physical gold bullion in professional bars can be held inside a tax-efficient SIPP pension plan. And for everyone inbetween, simple and sensible profit-taking can exploit the personal allowance across a number of years to cut your liability, should one arise.
 
Unless, of course, you really do enjoy giving away one-fifth of your profits in dealer fees, even before you add the hassle and costs of insurance.

Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London's top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian's views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany's Der Stern; Italy's Il Sole 24 Ore, and many other respected finance publications.

See the full archive of Adrian Ash articles on GoldNews.

Please Note: All articles published here are to inform your thinking, not lead it. Only you can decide the best place for your money, and any decision you make will put your money at risk. Information or data included here may have already been overtaken by events – and must be verified elsewhere – should you choose to act on it. Please review our Terms & Conditions for accessing Gold News.

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