Alternative Assets
Investing in gold and jewellery
The second article in our Alternative Assets series focuses on gold and jewellery; both having long been valued for their investment potential. Whether you are acquiring gold bullion, coins, or fine jewellery, understanding the tax implications in the UK is essential for making informed financial decisions.
This article explores the taxation of gold investments, covering Capital Gains Tax (CGT), VAT, and how trading classifications can impact tax liabilities.
Trading vs investing in gold
Before purchasing gold, it is important to determine whether you are classified as an investor or a trader, as this distinction affects the tax treatment of your holdings.
Investors
If you purchase gold with the intention of holding it for an extended period with a view to increasing capital value, you are typically considered an investor. Profits made from selling gold investments are generally subject to CGT rather than income tax. Investors benefit from the annual CGT exemption, which allows individuals to realise a certain level of capital gains tax-free each tax year (£3,000 for 2024/25) [time sensitive so you may want to remove].
Traders
Individuals who frequently buy and sell gold in a structured or professional manner may be classified as traders. In such cases, HMRC may consider their activities as a business, meaning profits would be subject to the typically higher rates of income tax rather than CGT. This classification depends on factors such as the frequency of transactions, intention behind purchases, and the level of organisation in trading activities. Seeking professional tax advice can help clarify your status and any resulting tax obligations.
CGT on gold and coins
One of the key advantages of investing in certain gold coins is their exemption from CGT. UK legal tender gold coins produced by The Royal Mint, such as the Britannia and Sovereign, are exempt from CGT regardless of the profit made on their sale. This makes them a particularly attractive investment for those looking to manage their tax liabilities effectively.
However, not all gold investments enjoy this benefit. Coins such as Krugerrands, American Gold Eagles, and Canadian Maple Leafs, as well as gold bars and wafers, are subject to CGT upon sale. If the total gains from these assets exceed the annual CGT allowance (currently £3,000 in the 2024/25 tax year), a tax rate of 18% (for basic rate taxpayers) or 24% (for higher and additional rate taxpayers) applies.
Additionally, certain collectables, including high-value jewellery pieces, may also be taxed under CGT. However, jewellery sales are exempt from CGT if the sale price of an individual item does not exceed £6,000. If a single item or set exceeds this amount, CGT may be applicable, with a maximum rate of 24% for higher-rate taxpayers.
How is VAT charged on gold and precious metals?
Investment gold
Investment gold enjoys a VAT exemption in the UK, making it more tax-efficient than other precious metals. This exemption applies to:
Gold bars or wafers with a purity of at least 99.5%
Gold coins that are considered investment-grade, such as certain Britannia and Sovereign coins are exempt from VAT in the UK. This means that when you buy qualifying gold bars or wafers, you do not have to pay VAT on the purchase.
Additionally, transactions where investors hold entitlement to a portion of a supplier’s gold stock, rather than taking physical delivery, may also qualify for VAT exemption.
Other precious metals
Unlike gold, silver, platinum, and palladium do not benefit from VAT exemption and are subject to the standard VAT rate of 20%. This makes gold a particularly attractive investment compared to other metals, as it offers potential tax advantages alongside its role as a hedge against inflation.
Benefits of investing in gold
Gold has been a trusted store of value for centuries and continues to play a crucial role in diversifying investment portfolios. Some key advantages of gold investments include:
- Hedge Against Inflation: Gold often retains its value during times of economic instability and rising inflation.
- Portfolio Diversification: Adding gold to an investment portfolio can reduce overall risk and enhance stability.
- Tax Advantages: UK legal tender gold coins are CGT-free, and investment gold is VAT-exempt, offering favourable tax treatment compared to other assets.
Speak to our experts today…
While gold and jewellery investments can be financially rewarding, they also come with complex tax considerations. Investors should ensure they understand the tax treatment of their holdings and seek professional financial advice to maximise potential returns while remaining compliant with HMRC regulations.
We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.
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