6 Ways to Invest in Silver: Which Is Best?

There are more ways to invest in silver than simply buying coins or bars.

Investors can own physical silver at home, store bullion professionally, buy silver-backed exchange-traded products, invest in mining companies or even trade contracts based on movements in the silver price.

But these aren’t interchangeable investments.

Buying a silver coin means owning a tangible asset. Buying shares in a silver mining company means owning part of a business. Trading silver futures means taking a position on the future price of silver. Each can provide exposure to the silver market, but the costs, risks, tax treatment and reasons for investing can be very different.

So, what are the main types of silver investment and which might suit you?

Most ways of investing in silver fall into two broad groups:

Physical silver – you own identifiable silver bullion, either in your possession or stored on your behalf.

Non-physical or paper silver – you own a financial asset whose value may be linked directly or indirectly to silver.

For investors buying precious metals as a tangible store of wealth or as diversification away from conventional financial assets, that distinction can be particularly important.

Here are six of the principal options.

Silver coins offer several benefits:

• they are easy to understand and identify;
• smaller denominations make a holding highly divisible;
• established bullion coins generally have a broad resale market;
• government-minted coins can provide additional reassurance over authenticity and specification; and
• qualifying UK legal-tender silver coins can provide an important CGT advantage for UK investors.

That final point can become increasingly relevant as a portfolio grows.

Qualifying British legal-tender coins are treated as sterling currency and are therefore exempt from UK Capital Gains Tax. This makes coins such as Silver Britannias particularly attractive to UK investors concerned about potential gains over the long term.

The main drawback is cost.

Manufacturing thousands of individual 1oz coins is more expensive than producing the equivalent quantity of silver as large bars. Coins will therefore usually command a higher premium per ounce than larger silver bars.

Physical silver purchased for delivery in the UK will also normally be subject to VAT, unlike qualifying investment gold.

Investors therefore need to weigh the flexibility and potential tax advantages of coins against their higher initial cost.

Their main advantages are:

• lower premiums per gram, particularly on larger bars;
• a simple way to accumulate substantial quantities of physical silver;
• standardised weights and purity from recognised refiners; and
• a wide choice of sizes.

For larger silver investments, these cost efficiencies can be significant.

What size silver bar is best?

The biggest bar isn’t automatically the best choice.

A very large bar may minimise the premium per gram, but it also reduces flexibility. If you subsequently want to sell only part of your silver portfolio, you can’t divide a single bar.

For that reason, many investors seek a compromise between cost efficiency and divisibility.

A portfolio might, for example, combine larger bars for cost efficiency with smaller bars or coins that can be sold individually.

Read our guide to the different types of silver bars for a closer look at the available choices.

Are silver bars CGT free?

Generally, no.

Unlike qualifying British legal-tender coins, conventional silver bullion bars are not sterling currency and don’t benefit from the same blanket CGT exemption.

Whether an individual ultimately has CGT to pay depends on their circumstances, gains and the tax rules applicable at the time of disposal.

This makes the balance between lower purchasing premiums on bars and potential tax advantages of qualifying British coins an important consideration for UK investors.

Another approach is to buy shares in companies involved in producing silver.

Mining shares can sometimes benefit disproportionately from rising silver prices. If the market value of the silver a company produces rises faster than its costs, profits may increase significantly.

But the reverse can also happen.

You’re investing in a company, not just silver

A mining company’s share price can be influenced by far more than the silver price.

Factors can include:

• management quality;
• energy and labour costs;
• the grade and size of mineral deposits;
• financing and debt;
• political and regulatory risk;
• exchange rates;
• operational problems;
• environmental obligations; and
• the performance of individual mines.

A silver miner can therefore perform poorly even while silver itself is rising.

Equally, a successful mining business can potentially outperform movements in the underlying metal.

Investors seeking greater diversification within the mining sector can also consider funds holding multiple mining companies rather than relying on the fortunes of a single producer.

This is fundamentally an equity investment rather than ownership of physical silver.

Silver futures are a considerably more sophisticated way to gain exposure to the metal.

A futures contract is an agreement to buy or sell a specified amount of silver at an agreed price at a future date.

These contracts are commonly used by commercial market participants to manage price risk, but traders can also use them to speculate on movements in silver.

Leverage changes the risk

Futures can provide leveraged exposure, meaning a trader may control a position worth considerably more than the initial capital committed.

This magnifies potential gains – but it also magnifies potential losses.

Unlike buying a silver Britannia and holding it for the long term, futures positions can require active management and additional margin if markets move against the trader.

Depending on the instrument and strategy, losses can be substantial.

Futures and other leveraged derivatives are therefore very different from simply buying physical silver and are generally better suited to experienced investors who understand leverage, margin and short-term market risk.

There isn’t a single answer because the two approaches can serve different purposes.

Physical silver may appeal more if you want:

• direct ownership of a tangible asset;
• diversification away from conventional financial assets;
• long-term ownership rather than frequent trading;
• the ability to hold bullion outside the banking and investment-platform system; or
• the potential CGT advantages available from qualifying British legal-tender coins.

Paper or electronic silver may appeal more if you want:

• easy online buying and selling;
• short-term exposure to movements in the silver price;
• integration with an existing securities portfolio;
• no responsibility for physical storage; or
• more sophisticated trading strategies.

The distinction becomes especially important when considering why you’re buying silver in the first place.

If your aim is simply to speculate on the silver price, an electronic investment may achieve that efficiently.

If you’re buying silver because you specifically want to own a finite physical asset, replacing it with a share, fund or derivative changes the nature of the investment.

For investors who have decided they want physical silver, the choice usually comes down to cost, flexibility, tax and storage.

Silver coins provide excellent divisibility and qualifying British legal-tender coins can offer CGT advantages.

Silver bars generally provide more silver for your money because manufacturing premiums tend to be lower, particularly for larger bars.

Vaulted silver can make sense for investors who don’t require immediate possession and want to explore more VAT-efficient ways of building a physical silver holding.

Many investors don’t have to choose just one. Combining coins and bars, for example, can provide the flexibility of smaller denominations alongside the lower premiums available from larger bullion products.

Silver has several characteristics that make it interesting as part of a diversified portfolio.

It is a finite physical asset with both investment and industrial demand. But it is also capable of significant price volatility, and its price can fall as well as rise.

Silver shouldn’t therefore be viewed as a guaranteed route to profit.

The more useful question is whether silver fulfils a particular role within your portfolio and, if it does, which form of silver provides the characteristics you actually want.

For a broader look at the case for and against the metal, read our guide on how to invest in silver.

What is the best way to invest in silver in the UK?

The best method depends on your objectives. Investors who want direct ownership may prefer silver coins, bars or professionally vaulted bullion. Investors primarily seeking convenient exposure to the silver price may consider exchange-traded products, while mining shares and derivatives introduce additional company or trading risks.

For UK physical silver investors, tax treatment should also be considered. Qualifying British legal-tender silver coins can be exempt from UK CGT, while silver purchased for UK delivery will normally attract VAT.

Is it better to invest in silver coins or bars?

Silver bars generally have lower premiums per gram, making them attractive for investors seeking to maximise their physical silver holding. Coins offer greater divisibility and qualifying British legal-tender coins can provide UK CGT advantages.

A combination of both can provide a balance between cost efficiency and flexibility.

Do you pay VAT on silver in the UK?

Physical silver supplied for delivery in the UK will generally be subject to VAT at the standard rate. This differs from qualifying investment gold, which benefits from a specific VAT exemption.

Certain specialist storage arrangements can allow investors to purchase and hold silver without VAT becoming immediately payable, provided the relevant conditions continue to be met.

Is silver exempt from Capital Gains Tax?

It depends on the form of silver.

Qualifying British legal-tender silver coins can be exempt from UK Capital Gains Tax because sterling currency is not a chargeable asset for CGT purposes. Conventional silver bars don’t benefit from the same exemption.

An investor’s wider tax liability depends on their individual circumstances, so professional tax advice may be appropriate.

Can I hold physical silver in a SIPP?

Physical silver bullion does not receive the same specific UK pension treatment available to qualifying investment-grade gold bullion. Investors considering precious metals within a SIPP should check the current HMRC rules and the assets permitted by their individual pension provider.

What is the safest way to buy physical silver?

Buy recognised bullion from an established dealer and understand exactly what you’re purchasing, including its weight, purity, premium and resale arrangements.

If your silver is being stored by a third party, you should also understand whether it is allocated to you, where it is held, how it is insured and what rights you have to sell or withdraw it.