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RMAP is redeemed gold a taxable event?

Practical Issues
1nvest
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RMAP is redeemed gold a taxable event?

#428505

Postby 1nvest » July 18th, 2021, 2:59 pm

If a investor holding RMAP, a Royal Mint gold fund (ETC) backed by physical that provides the option to redeem to physical gold, actually redeems shares into physical gold, should that be considered as taxable event i.e. as though a gold fund had been sold and physical gold bought and any capital gains made during the time RMAP was held declared at that time, or is it a case of the capital gain not needing to be declared until the physical gold is sold with the gain of the combined RMAP and physical gold holding period gain only then being declared?

My understanding is that if you sell and repurchase the same asset within 30 days then HMRC consider it as no sale/repurchase as having occurred, I believe some sell one stock index fund provider product to buy another (different provider) that is near (or precisely) identical in order for that to not be the case i.e. to perhaps lock in a yearly capital gains tax allowance amount whilst continuing to in effect still continue holding the same investment. So I suspect that redeeming RMAP as physical gold would fall into a similar sort of category and would be considered as a taxable event?

TIA.

Gengulphus
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Re: RMAP is redeemed gold a taxable event?

#428613

Postby Gengulphus » July 18th, 2021, 9:19 pm

1nvest wrote:If a investor holding RMAP, a Royal Mint gold fund (ETC) backed by physical that provides the option to redeem to physical gold, actually redeems shares into physical gold, should that be considered as taxable event i.e. as though a gold fund had been sold and physical gold bought and any capital gains made during the time RMAP was held declared at that time, or is it a case of the capital gain not needing to be declared until the physical gold is sold with the gain of the combined RMAP and physical gold holding period gain only then being declared?

Sorry, I don't know. I can see an argument that it's like selling the RMAP units (or whatever they're called) and using the proceeds to buy gold, in which the sale of the units was a taxable event; I can also see an argument that it's like a share reorganisation, in which the nature of the asset changes but it continues to have the same base cost for CGT purposes. Which of those two is correct may well depend on exactly how the redemption is done - for example, if it's done by converting units representing N grams of gold into N grams of physical gold, either with no fee or with a fixed adminstration fee, I'd feel that strengthens the second argument. If on the other hand it's done with a percentage-based fee, I'd feel that that suggests there's at least an implied sale... But those are definitely speculative musings by me, so don't rely on them! Instead, if you're lucky someone will come along who can answer your question, and otherwise I can only suggest looking for the answer in RMAP product documentation or HMRC's Capital Gains Manual, or failing that, asking the Royal Mint, HMRC and/or a tax adviser for the answer. (If you ask the Royal Mint or HMRC, take care just to ask for tax information, not for tax advice. I.e. avoid questions like "What should I do?" and instead restrict yourself to questions like "What is the tax treatment of this situation?")

1nvest wrote:My understanding is that if you sell and repurchase the same asset within 30 days then HMRC consider it as no sale/repurchase as having occurred, I believe some sell one stock index fund provider product to buy another (different provider) that is near (or precisely) identical in order for that to not be the case i.e. to perhaps lock in a yearly capital gains tax allowance amount whilst continuing to in effect still continue holding the same investment. So I suspect that redeeming RMAP as physical gold would fall into a similar sort of category and would be considered as a taxable event?

Your understanding is definitely incorrect: see the pages linked to from https://www.gov.uk/hmrc-internal-manual ... l/cg13350p for what applies to any asset, and https://www.gov.uk/hmrc-internal-manual ... al/cg51560 for what applies specifically to shares and securities (which if I understand correctly basically means assets that are normally traded by amount without identifying the precise assets involved - e.g. if you partially sell a shareholding, you just say that you want to sell N shares without identifying precisely which N shares they are). The rule that mentions the specific period of 30 days is in the latter and so only applies to shares and securities; there are tests that apply to sales of other assets in https://www.gov.uk/hmrc-internal-manual ... al/cg13360, but they don't mention any specific period.

Just as important, when the 'bed & breakfast' rule with its period of 30 days does apply, it does NOT say that HMRC consider it as no sale/repurchase having occurred. It instead basically says that the sale is to be treated as having sold the repurchased shares, with the originally-purchased shares remaining 'on the CGT books' for subsequent sales. This typically means that the capital gain or loss realised by the sale is small (since share prices don't usually move all that much in 30 days), but it can result in a substantial gain or loss being realised, and it will only result in no gain or loss at all being realised by sheer chance (and even if that does happen, the sale is still a disposal to be accounted for in CGT computations rather than a non-event).

Gengulphus

1nvest
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Re: RMAP is redeemed gold a taxable event?

#428623

Postby 1nvest » July 18th, 2021, 9:58 pm

Gengulphus wrote:Sorry, I don't know. I can see an argument that it's like selling the RMAP units (or whatever they're called) and using the proceeds to buy gold, in which the sale of the units was a taxable event; I can also see an argument that it's like a share reorganisation, in which the nature of the asset changes but it continues to have the same base cost for CGT purposes. Which of those two is correct may well depend on exactly how the redemption is done - for example, if it's done by converting units representing N grams of gold into N grams of physical gold, either with no fee or with a fixed administration fee, I'd feel that strengthens the second argument. If on the other hand it's done with a percentage-based fee, I'd feel that that suggests there's at least an implied sale... But those are definitely speculative musings by me, so don't rely on them!

There's a redemption fee ...
Does it cost me money to redeem my Metal Securities?

There are no Redemption Fees if a Securityholder sells its
Metal Securities in the secondary market.
However, if a Securityholder redeems the Metal Securities
directly from the Issuer, a Redemption Fee applies. The cost
of a Redemption varies depending on the type of
Redemption and the nature of the Securityholder. In the
case of an Optional Redemption, Metal Securityholders who
are not Authorised Participants will be notified of the
applicable fee upon redemption, which will not be greater
than €600.

More of a of-interest/backburner question, so perhaps as part of Covid unlocking but vacations abroad being less viable a investigatory trip to Wales might be nice :) I suspect its much the same as for buying Options and then taking physical delivery at expiry i.e. likely requires advice from a tax specialist/professional.

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Re: RMAP is redeemed gold a taxable event?

#428717

Postby Gengulphus » July 19th, 2021, 10:18 am

You may find https://www.hanetf.com/rmau-base-prospectus of use - the version of that prospectus dated 18/12/2020 has a section on UK taxation that indicates that the sale, redemption or other disposal is a CGT event. It's surrounded by lots of provisos about not necessarily applying to all investors, consult your own tax adviser, etc; it has flip-flopped on the issue of whether they count as "deeply discounted securities" since the 31/01/2020 version; you may well need to negotiate some disclaimers to get to it; the file name indicates that it's for RMAU rather than RMAP (but the text of the prospectus indicates it applies to "The Royal Mint Physical Gold ETC Securities" and I think the difference is basically just that RMAP is the sterling-denominated version while RMAU is the dollar-denominated version).

So I'm only mentioning it for what it's worth, with lots of uncertainties about what it's worth in my mind!

Gengulphus

1nvest
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Re: RMAP is redeemed gold a taxable event?

#428784

Postby 1nvest » July 19th, 2021, 1:47 pm

Gengulphus wrote:You may find https://www.hanetf.com/rmau-base-prospectus of use - the version of that prospectus dated 18/12/2020 has a section on UK taxation that indicates that the sale, redemption or other disposal is a CGT event. It's surrounded by lots of provisos about not necessarily applying to all investors, consult your own tax adviser, etc; it has flip-flopped on the issue of whether they count as "deeply discounted securities" since the 31/01/2020 version; you may well need to negotiate some disclaimers to get to it; the file name indicates that it's for RMAU rather than RMAP (but the text of the prospectus indicates it applies to "The Royal Mint Physical Gold ETC Securities" and I think the difference is basically just that RMAP is the sterling-denominated version while RMAU is the dollar-denominated version).

So I'm only mentioning it for what it's worth, with lots of uncertainties about what it's worth in my mind!

Gengulphus

Thanks Gengulphus.

Via that link I tracked down a redemptions FAQ https://www.hanetf.com/UsersFiles/HanET ... n-FAQs.pdf which pretty much covers all of my questions. Basically ...

1. Redemptions (generally/subjectively) taxed as though the ETC had been sold to cash
2. Conversion to Britannia's for instance is at spot gold + 6.99% i.e. relatively expensive compared to some other suppliers and little/no different to had you sold to cash and then bought Britannia's from the Royal Mint. With the addition of a Redemption fee also added in on top (of no more than 600 Euro's).

IIRC the RM charges a relatively higher fee/spread on Britannia's it supplies (6.99%) whilst supplying other 'approved' suppliers at a lower rate in order to promote the alternative sources of supply of coins it mints. I was somewhat hoping to see a possible pathway for retail investors to obtain Britannia's via RMAP redemptions at a better rate than via their conventional retail pathway but the indications are that isn't the case.

Given higher fees for their fund (0.22% instead of 0.15% for SGLN) and no encouragement to redeem at a more competitive rate compared to their standard retail supply, has little appeal for me.

Holding gold as part of a portfolio and funds have tighter spreads, better for rebalance purposes. However some physical gold is also appropriate, no ongoing fees once purchased excepting if you pay for secure storage - core holdings that you have no real intent to sell. A reasonable way to get to that sort of balance is to start of with gold funds, and then after reasonable real portfolio gains occur discount some of those gains to cover the cost of converting from gold fund to physical gold holdings. Stock/gold 50/50 portfolio where all of gold exposure is via a gold fund, upon seeing a 10% real portfolio gain then chalk that up as a +8% gain year and use the additional 2% to cover the 4% Britannia coin premium above spot gold ... type approach. Other peoples money mindset.


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