Gold coins glitter after VAT ruling

GOLD, the great 1970s investment medium that flopped in the 1980s, is still waiting for a revival. The price was pegged at $35 an ounce from 1935 until 1972 and, once released, went sky-high. It peaked at $850 an ounce in January 1980 and since then has gone nowhere fast.

In the 1970s it was quite common for private investors to buy a few gold coins to add to their portfolios, but even that was stamped on by authority. When exchange controls were lifted in 1979, VAT was charged on gold bullion bars, although not on coins. Fraudsters purchased gold coins, melted them, turned them into ingots and claimed back the VAT when they were sold.

In April 1982 VAT was imposed on coins too. Private investors could not reclaim the VAT and stopped buying.

Only antique coins worth much more than their gold content escaped. Now, thanks to an EU directive, private investors can again buy modern gold coins for a fraction above their gold content, and still escape the 17.5 per cent VAT.

Provided certain rules are observed, the directive allows dealers to sell any second-hand item worth less than £500 without collecting VAT on the retail price. If the item is made from precious metal, it has to be sold above its metal content's market value. Gold coins, including British sovereigns, Australian Nuggets, Canadian Maple Leafs and South African Krugerrands are in this category, provided they are not fresh from the mint nor have just been brought in from outside the EU.

Although the directive was not specifically implemented to cover bullion coins, Customs and Excise accepts that the legislation embraces such material.

Not all dealers operate the scheme, so check before you buy. Dealers also still pay tax on the difference between the cost of a coin and the price it fetches. Nigel Tooley, in charge of Spink's bullion department, says the spread between bid and offer price of bullion coins has not altered significantly.

However, gold coins are a much cheaper way of buying gold than gold chains and charms, which carry a big mark-up.

There is 0.2354 troy oz of gold in a sovereign, which means its bullion value last week was about £57.50. In bulk dealers would buy at £57 and sell at £59.

However, its retail price depends on the quantity purchased. For a small order, the retail price on Friday was £63 each. For larger orders of, say, 50 or more, the price falls to £60 each.