What is a Gold ISA?
A Gold ISA is an ISA account that invests in the value of gold through ETFs (exchange traded funds).
As it is not possible to hold physical gold in an ISA account, you can hold an ETF (ETC – Exchange Traded Commodity) that directly tracks the value of gold. If the value of gold goes up, so does the value of your ETF tracker fund, and vice versa.
What are the benefits of a Gold ISA?
Get Tax Free Returns
If you invest in gold outside of an ISA account, either via an ETF or other means, then your investment will be subject to tax.
This means that any growth your gold makes will be liable to Capital Gains Tax (CGT) when you come to sell it.
If your gold investments grow considerably over the long term then this could cost you a big chunk of your savings.
A higher or additional rate taxpayer will pay 20% CGT on investment gains.
If you hold a Gold ETF in a Stocks and Shares ISA account, then you will never need to worry about paying tax on your returns.
ETF Charges Are Lower
Most ETFs or ETCs will only charge around 0.1% for the ongoing management of the fund. This is because there is no expertise or rebalancing to carry out on a day-to-day basis, meaning that the running costs are fairly low.
If you invest in a managed fund or a ready-made ISA, the charges will be considerably higher. While you will benefit from professional management, you could pay 0.5 to 1% or even higher for the privilege.
Benefit from different types of ISAs
You can also hold Gold ETF investments in a Junior ISA and a Lifetime ISA, depending on which ISA is best for you.
This means that you can invest in a Gold ISA for your children, or your first house deposit, and benefit from the tax advantages of these ISA accounts.
What is the best Gold ISA?
There are two main points to be aware of when comparing Gold ISAs:
ISA Provider Charges
Regardless of the underlying Gold ETF you choose to invest in, you will first need to pick your Stocks and Shares ISA account provider.
Each provider will take an annual management charge from the value of your ISA, based on how much you hold with them. Some providers will charge different amounts for ETFs compared to other funds, so make sure you read the charges information of each account carefully.
For example, Hargreaves Lansdown currently does not charge investors for holding Gold ETFs in their General Investment Accounts (GIAs), however, within an ISA they charge 0.45% per annum (capped at £200) for these same holdings.
You should also consider dealing charges, administration charges and any other ad hoc charges that apply to your account.
Leveraged Gold ETFs
An important feature of ETFs is their ability to include leverage in their performance. Leverage refers to the amount of multiplication an ETF applies to the performance of the fund.
For example, The WisdomTree Gold 3x Daily Leveraged fund has a leverage of 300% that is calculated daily. This means that if the value of gold rises 1% in a day, then the ETF value will rise 3% on that day (minus any fees).
This leverage works both ways, so any decrease in the value of Gold will have the same multiplication applied.
Leveraged ETFs are considered high-risk investments, and so you should make sure you are comfortable with the possibility of losing some or all of your money.
In addition to this, some ETFs ‘short’ the gold index and some ‘long’ the index. An ETF that shorts the gold index will have reversed performance: when the value of gold raises, the ETF will fall in value to the equivalent amount.
An ETF that shorts the gold index will make it clear in the name of the fund and in the product literature, so make sure to look out for this factor.
What are some alternatives to Gold ISAs?
Other commodities and index ISAs
As well as gold ISAs, you can also invest in other commodity trackers in an ISA via ETFs, such as:
- Precious Metals
Having a diversified portfolio is a good way to spread your risk so if one of your investments performs poorly it will reduce the impact on your whole ISA.
Most Stocks and Shares ISAs will allow you to hold as many ETFs or ETCs as you wish, although some of these funds will have a minimum investment amount of £100 or more.
Managed fund ISAs
If you are not comfortable with the risk involved with investing directly into ETF trackers then you can invest in a managed fund instead.
You still need to pick a sector, index or industry to find a specific managed fund, but you might appreciate the peace of mind that the fund will be managed by a professional investment manager.
However, you will pay higher charges for managed funds and these are deducted directly from the funds and reflected in their performance.
How to open a Gold ISA
You can open and invest in a Gold ISA in the following steps:
- Open your account online, over the phone or with a form
- Make a debit card payment or set up a direct debit regular contribution
- Choose and purchase the ISA Gold ETF fund you want to buy
Can I withdraw money from a Gold ISA?
Yes, you can withdraw money from your Gold ISA at any time.
How much money can I add to a Gold ISA?
The ISA allowance for a Gold ISA is £20,000 for the current tax year. This is your Stocks and Shares ISA allowance.
Can I lose money in a Gold ISA?
Yes, your investments can go up as well as down because the value of gold can both increase and decrease.
How will a Gold ISA perform?
A Gold ISA will not outperform the commodity of Gold itself, so you need to think about how the value of Gold will change over the course of your investment.
Can I transfer my ISA into a gold ISA?
Yes, you can transfer a cash ISA or a different Stocks and Shares ISA into a Hold ISA.
If you already have a Stocks and Shares ISA open with a provider, you will be able to sell your holdings and buy a Gold EFT within your current ISA wrapper as long as your provider allows this.
Are Gold ISAs safe?
Your ISA provider will be protected by the FSCS scheme and regulated by the Financial Conduct Authority (FCA).
The value of gold, of course, is not covered by any compensation scheme, and so you could lose or gain money based on its performance if you hold a Gold ETF.
Do Gold ETF ISAs cost money?
Yes, you will be charged an annual fee from your ISA provider and also by the Gold ETFs that you invest in.