Silver has something of a troubled relationship with VAT. Whilst gold, it’s better known and more valuable precious metal counterpart, is largely VAT free, silver has never been so lucky. In the vast majority of cases, silver products are subject to the same 20 per cent flat VAT tax rate as the goods you buy at the supermarket.
There’s a good chance that the precious metal market would look very different if this barrier wasn’t in place. So why exactly is this such a hindrance to potential silver investors – and how can they invest in silver without this 20 per cent barrier?
VAT, gold and silver: A volatile relationship
It’s not always been the case that silver is subject to VAT and gold exempt. Up until fairly recently, neither were VAT exempt. As commodities, the law has always struggled to accord precious metals the same investment benefits that shares, bonds and other investment types have enjoyed. This has always inhibited the potential success of the market.
At the turn of the millennium however, the European Union unilaterally abolished VAT on gold across the entire trading area. They realised that they couldn’t ignore gold’s investment status – and that the uneven VAT rates for the commodity across the block’s constituent countries made trade difficult and often unfair.
The easiest way to establish a standardised EU VAT rate for gold was simply to abolish it altogether.
Unfortunately, as a less valuable and less widely traded precious metal, silver never received the attention it deserved, and still remains subject to the tax today.
The silver market in a VAT free world
The problem with setting a flat fee on any investment is that the investment itself would have to increase in value by more than the fee you paid in order for the investment to be worth it.
That has profound implications on the wider investment market. One wonders how many potential silver trades never happen because the investor isn’t confident it will rise by the 20 per cent necessary to cover their VAT fee.
Not only does it mean that fewer people invest in silver – it also changes the nature of the investments that people do pursue. As it’s unlikely that silver will appreciate by 20 per cent over a short period of time it must become a far longer-term investment. This is contrary to what a silver price chart would lead you to believe.
Silver is much more volatile a commodity than its better known precious metal cousin. In an ideal world, this volatility would well suit it to short term trading periods. VAT makes this largely impossible, curbing the tangible potential of this promising precious metal. Is VAT free silver possible?
Since VAT is paid on goods and commodities, the 20 per cent tax is only payable if the actual tradable product exchanges hands.
Here at UKBullion, we operate a scheme that allows you to own an equivalent value of physical silver, which is held in a protected vault in Dubai. The actual product doesn’t enter the UK, so no tax is payable, and you can begin making profits from the first per cent that the silver ascends in price.
The important thing to remember is that the silver belongs to you. You can sell the product at any time and even arrange to have it delivered– though it would then become subject to VAT.
Many other precious metal companies run similar schemes of which the logistics aren’t always as clean as they could be. If they don’t let you know exactly how their VAT free scheme works, you probably shouldn’t risk it. Luckily, our operation is about as squeaky clean as they get – and we’d be happy to talk you through the whole process in more detail if you’d rather contact us in person.
This scheme could be of real value to those interested in the silver market, but unwilling to pay the 20 per cent fee on a silver product purchase. Silver is currently comparatively cheap, and could well soar in value over the coming months – so many investors are looking at a previously disregarded silver market with a newfound interest.