Tax free gold price on the way up
With tensions in Syria reaching boiling point, it hasn’t gone unnoticed that the price of gold has steadily risen as the world prepares for conflict. In fact, the reliable safe haven investment is now technically in a bull run again after gaining more than 20% from its June lows.
Tracking the tax free gold price is essential if you’re to time your entry into the market well and maximise returns.
When is gold tax free?
Tax regimes can vary dramatically around the world so we’ll just focus on the tax treatment of gold in the UK. All investment grade gold is VAT exempt, meaning you’ll pay no tax when you buy. To qualify as investment grade, the gold needs to be 22 carats or higher in purity and in the form of a bar or coin. So this instantly discounts the merits of lower grade jewellery, or gold in the form of dust as tax free gold.
Owning physical gold bars and coins doesn’t produce any dividends like a gold mining share might, so a holder also avoids paying any tax while holding them.
The final piece in the jigsaw is whether any tax will be applicable upon sale – known as Capital Gains Tax (CGT). Generally speaking any profits you’ve made are liable for CGT once you’ve breached your annual allowance. So if you sell gold bars or foreign coins such as Krugerrands, you may have to pay CGT.
However, the amazing loophole lies with British coins. Namely UK Britannia and Sovereign gold coins are actually legal tender in the UK. As such, the Treasury can’t tax you on their movement, essentially rendering them CGT free! So if you want to avoid paying tax when buying, holding and selling gold – Sovereign coins are a great place to start.
What influences the tax free gold price?
There are several variables which contribute to the price of Britannia and Sovereign coins. Firstly, the age and condition of the coins. Generally, brand new coins will trade at a 1-2% premium to circulated coins. In my opinion, older coins offer better value as you’re unlikely to receive the same premium you paid when you come to sell brand new coins.
Secondly, the number of coins you’re looking to purchase will impact the price you pay. Generally speaking, you should benefit from economies of scale with the premium you pay shrinking as you buy more.
The fact that the UK gold coins are real and tangible, rather than simply paper gold like ETFs or mining shares, means that supply and demand will also influence the gold price. If the market experiences high demand and/or restricted supply, then you may find yourself paying higher premiums for the same coins.
Finally, the place from which you source your gold coins will have an impact on price. Buy direct from the Royal Mint and you’ll pay over the odds due to packaging and presentation. However, purchasing from a reputable gold dealer should keep premiums to a minimum.
Clearly if you don’t want to have to call a gold dealer every 5 minutes to gauge prices, it’s useful to be able to trace the approximate price on the internet. If you’ve already bought gold coins, you may simply want to track their value. While the factors discussed above will determine the exact price, it is possible to estimate its value from the gold spot price. This price moves throughout the day and is fixed twice daily – known as the London fix. These fixes can be found on the LBMA website or the live price with a gold dealer such as Physical Gold Ltd. You can then simply add a premium of between 7-12% to obtain a decent guide to the price of tax free gold.