Investment gold

What it means

Investment gold means gold bars and coins that meet statutory criteria, and their supply is exempt from VAT under a special scheme. A bar must have a purity of at least 995 thousandths and a weight accepted by bullion markets; a coin must be at least 900 thousandths pure, minted after 1800 and legal tender.

For coins the price matters too: the normal selling price must not exceed the value of the gold content by more than 80%. Collector coins with a high numismatic premium are therefore not investment gold, and their sale is taxed normally or under the margin scheme.

The special scheme is meant to stop VAT from putting gold at a disadvantage compared with other investments such as shares or bonds. An individual therefore buys investment gold without VAT, and the exemption also covers intermediary services for such supplies.

How it works in practice

A trader that produces or processes investment gold may opt to tax a supply to another business. If the buyer is a VAT payer, the reverse charge applies and the buyer, not the seller, accounts for the tax.

Exemption does not necessarily mean losing deduction. A VAT payer selling investment gold exempt may deduct VAT on gold bought with tax or on services linked to its production, an exception to the usual rule that exempt supplies rule out deduction.

A company holding gold as a reserve reports it as a financial asset or inventory depending on its purpose, and on sale the difference between selling price and acquisition cost is taxed in the ordinary tax base. For an individual outside a business it is other income, where it is worth checking the available exemptions.

What to watch out for

Investment gold dealers have stricter anti-money-laundering obligations. Above certain amounts they must identify the customer and keep records, and paying in cash runs into the cash payment limit, so expect to pay by bank transfer.

A return on gold arises only on sale and depends on the dollar exchange rate and on the dealer's spread between buying and selling prices. Any capital gain should therefore be calculated after all costs and with the currency risk in mind.