Facebook Twitter Pinterest RSS

Is your Gold and Silver Bullion Investment Subject to VAT?

A majority of the goods in the UK including tradable goods are subject to a VAT rate of 20 percent. There are some items that are subject to only 5 percent VAT rate. The question that most bullion investors would ask is whether gold and silver bullion is exempt from VAT. The fact is that gold bullion is exempt from VAT but silver bullion is not.

There was a time when the VAT rate varied from one country to another in the European Union where gold is concerned. This gave rise to unfair competition and UK had a certain disadvantage because some of the European Union states had very low VAT rates or had exempted gold of VAT completely. Consequently, it was decided that a VAT system would be introduced that will remove this unfair competition and different VAT rates. At the same time, it was thought that if gold was exempted from VAT then it will get the same treatment as certain investments like shares and stocks.

This VAT exemption of gold became a law in the VAT act of 1994 and stated that there will be specific gold coins included in the exemption. This decision was not taken from the point of view that certain gold coins are rare and interest collectors but because gold coins have a high trade value. If you are thinking of investing in gold bars or coins in the UK, there is good news for you. All gold bullion including coins and bars is exempt from VAT. The biggest misconception is that most people or investors think that since gold is exempt all other precious metals are also exempt but that is not the case. Unfortunately, that is not the case. If you are thinking of investing in silver then VAT payable is 20 percent. This VAT is payable for both silver coins and bars.

Are there any guidelines for investment gold and exemption from VAT?

HM Revenue and Customs has laid down certain guidelines for investment gold in the UK. It has also laid down guidelines for exemption of gold from VAT. The question is how do you define investment gold? According to HM Revenue and Customs, investment gold is:

  1. A gold bar whose purity will not be less than 995 thousandths of the weight that is accepted across bullion markets
  2. Any gold coin that is minted after 1800 and consists of purity that is not less than 900 thousandths. The gold coin should be the legal currency of the country of origin. Another important aspect is that the gold coin can only be sold at a price that will not exceed 180 percent of the open market value of gold used to make the coin.
  3. It should be a gold coin that has been specified in Notice 701/21A Investment gold coins.

HM Revenue and Customs has laid down certain guidelines for VAT exemption on specific gold bullion and this includes:

  1. On investment gold as specified by HM Revenue and Customs
  2. Supply of gold through possession of investment gold. This will include any and all supply of unallocated investment gold, swaps, loans, forward as well as future contracts that concern investment gold. It will not include options.

With VAT on Silver, is it a smart investment?

Unlike gold, silver is not considered as a smart investment because it is not exempt from VAT in the UK. If you are thinking of investing in silver in the UK then there are certain aspects that you need to consider. Even though, it not exempt from VAT, its price is lower than that of gold. Let’s look at an example. If you buy Gold Sovereign then the price of a single gold coin is £258 while that of silver Britannia is £23.71. You will be able to buy more of silver Britannia for the cost of gold. The value of silver is also on the rise. So if you buy a silver Britannia for £23.71 today then by 2015, it will have a higher value. Comparatively, silver is less costly and hence a good investment.

Again, the investment controlling factor is VAT. VAT is a tax that you will have to pay upfront when buying silver bars or coins. The truth is that because of VAT, investment in silver becomes a speculative long term investment. As an investor, you will need to hold on to your silver bullion till the price of silver rises by almost 20% so that you can break even. This is the only way you will be able to make profit through silver investment. Due to the VAT on silver bullion, most investors prefer gold bullion to make short-term profit.

One of the important aspects that investors need to consider is that prices of silver are more volatile as compared to gold. The value of silver between the period of September 2006 and 2011 has increased by almost 248 percent. The percentage rise was quite high in April 2011 when silver reached an all time high and was valued at £29T/OZ or 94p/gram. Since then the prices have stabilised.

The above statistics imply that if there is stability and buoyancy in the silver market, then you will be able to recover the initial 20% VAT you paid while investing in silver. One very important fact is that even though price of gold has achieved a new high in the recent past, silver is not far behind. In fact, silver prices have been consistently outperforming gold in the recent past even though it is not considered a smart investment. The bottom line is that investment in silver coins and bars is more profitable vis-à-vis gold.

Last but not the least, if you have VAT registration, there is a possibility of claiming the VAT paid by you on silver bullion. You can find out more information on the same from your accountant or from HM Revenue and Customs, who have set basic rules of VAT in their Notice 700 of the VAT Guide.