Gold in a Long-Term Plan and German Tax Basics

What you will learn

• How some investors use gold as one part of a diversified plan
• How rebalancing works with a gold allocation
• The VAT treatment of investment gold in the EU and Germany
• The holding period and exemption limit for private sales of physical gold in Germany

Explanation

Some long-term investors hold a part of their wealth in gold for diversification: spreading money across assets that do not always move together. This course does not recommend a specific amount.

Rebalancing means bringing the portfolio back to its target weights from time to time, for example once a year. This keeps the risk in line with the plan.

VAT on investment gold

The EU VAT rules include a special scheme for investment gold. In Germany, this is set out in § 25c of the VAT Act (Umsatzsteuergesetz, UStG). Supplies of investment gold are exempt from VAT. Investment gold includes:

• bars or plates of a weight accepted by the gold markets with a fineness of at least 995 thousandths;
• gold coins with a fineness of at least 900 thousandths, minted after 1800, that are or were legal tender in their country of origin, and that are usually sold for no more than 80% above the open-market value of their gold content.

Silver, platinum and palladium generally do not qualify.

Income tax on private sales

In Germany, a sale of privately held physical gold is a private sale transaction (privates Veräußerungsgeschäft, § 23 of the Income Tax Act, EStG). If the time between purchase and sale is more than one year, the gain is generally not taxable. If you sell within one year, the gain is taxable at your personal income tax rate. However, total gains from such private sales in a calendar year stay tax-free if they are below €1,000. This is an exemption limit (Freigrenze): if the total is €1,000 or more, the whole amount is taxable, not just the part above €1,000.

Gold ETCs, ETFs, mining shares, CFDs and futures can be treated differently. In 2015 the Federal Fiscal Court (Bundesfinanzhof) treated certain gold-backed securities with a delivery claim like physical gold; other products follow different rules.

Worked example

Hypothetical example: Lena buys a gold bar that qualifies as investment gold for €10,000 (no VAT). She has no other private sales in the year.

1. Case A: she sells after 8 months for €10,800. Gain: €10,800 − €10,000 = €800. The holding period is not more than one year, but the total gain is below €1,000, so it stays tax-free under the exemption limit.
2. Case B: she sells after 8 months for €11,200. Gain: €1,200. This reaches the limit, so the whole €1,200 is taxable at her personal rate.
3. Case C: she sells after 14 months for €11,200. The holding period is more than one year, so the gain of €1,200 is generally not taxable.

Rebalancing: a hypothetical €50,000 portfolio has a 5% gold target. After a year, gold is worth €3,500 and the rest €48,500, total €52,000. Target gold: €52,000 × 5% = €2,600, so sell €900 of gold (check the holding period first).

Common mistake

Practice activity

Hypothetical: Max buys gold coins that qualify as investment gold on 1 March for €6,000. He sells them on 1 December of the same year for €6,700. He has no other private sales. (a) What is the gain? (b) Is it taxable under the rules described above? (c) What would change if the sale price were €7,100?

Limitations: Real cases involve exact dates, costs, other private sales and possible loss offsets; get professional advice.

Key takeaways

• Gold can be one diversifying part of a long-term plan; rebalancing keeps weights on target.
• Investment gold meeting the § 25c UStG conditions is exempt from VAT; other precious metals usually are not.
• Private sales of physical gold after more than one year are generally not taxable in Germany.
• Within one year, an exemption limit of €1,000 per year applies; check details with a Steuerberater.

Next step

To deepen your chart skills for gold and other markets, continue with the course "Technical Analysis in Depth".