Physical silver vs silver ETFs and funds: which one actually suits you
There are three common ways to put money into silver in the UK, and they often get compared as though they were the same purchase at different shops. They are not. One is a physical object you own outright. One is a security that tracks the silver price. One is a basket of shares in mining companies, which is a different bet altogether.
They are taxed differently, they cost different amounts to hold, and they behave differently when markets get interesting. Here is what each one actually is, and who each one suits.
1. Physical silver: bars and coins
You buy metal, a dealer delivers it, and it is yours. There is no counterparty, no annual charge and nothing to renew. You can hold it, store it, give it away, or sell it back to any dealer.
The costs are all at the front. New silver carries 20% VAT in the UK, because unlike investment gold, silver is not VAT exempt. On top of that sits the dealer's cut on top of the silver price, which at 1oz is commonly 25% to 45% above the silver price itself, as our own live table shows, and which is much lower per ounce on a 1kg bar. Then, when you come to sell, a dealer buys back below the market price, and that spread is a real cost too.
Two routes soften the VAT. Second-hand silver is taxed only on the dealer's profit, not the whole price, so the saving is real and delivered. Silver kept in a vault has no VAT while it stays there, and taking delivery later triggers the full 20% on its value at that point. Our guide to VAT-free silver explains which is which, and the trap in the second one.
2. Silver ETFs, which in the UK are usually ETCs
Ask for a "silver ETF" in the UK and what you will actually buy is an ETC, an exchange traded commodity. It is a security listed on the London Stock Exchange, bought through any ordinary share dealing account, and backed by real silver bars sitting in a vault with a named custodian, meaning a bank that holds the metal and is named in the paperwork.
Two of the London-listed ones, so the numbers are concrete rather than hand-waved:
- iShares Physical Silver ETC (SSLN): total expense ratio 0.20% a year, metal held by JPMorgan Chase Bank, London branch.
- WisdomTree Physical Silver (PHAG): management fee 0.49% a year, backed by specific numbered bars held by HSBC Bank plc, of the standard the London bullion market accepts.
The headline difference is tax. You pay no VAT, because buying a security is not buying metal, and the transfer of securities is exempt from VAT. That alone puts an ETC roughly a fifth ahead of new physical silver on day one.
What you give up is the metal. You own a promise backed by silver, rather than the silver itself, and if the company behind it failed you would be relying on that backing rather than on metal in your hands. Creating and redeeming real bars is done by large institutions called Authorised Participants; as a private investor you sell your units for cash, not for a box of coins. If your reason for owning silver is that you want something with nobody in the middle, an ETC does not give you that.
3. Funds of mining companies: not the same thing at all
The third option gets lumped in with the others and really should not be. A silver miners fund, such as the Global X Silver Miners UCITS ETF at 0.65% a year, holds shares in the companies that dig silver out of the ground: Wheaton Precious Metals, Pan American Silver, Coeur Mining and others like them.
That is a bet on mining businesses, not on silver. Their share prices are driven by the silver price, but also by fuel costs, wage bills, debt, politics in the countries they operate in, and whether one particular mine hits trouble. Miners tend to move further than the metal does, in both directions. They can pay dividends, which a bar never will. They can also fall in a year when silver rises.
It is a perfectly legitimate investment. It is simply not a way of owning silver, and it should not be compared against a coin price as if it were.
The tax picture, side by side
| Physical bars and coins | Silver ETC | Miners fund | |
|---|---|---|---|
| VAT when you buy | 20% on brand new silver. Less on second-hand. Postponed on silver kept in a vault | None | None |
| Capital Gains Tax | Yes, except UK legal tender coins such as Britannias, which have none to pay | Yes, unless held inside an ISA | Yes, unless inside an ISA. Dividends are taxable too |
| Allowed in an ISA | No | Yes | Yes |
| Allowed in a SIPP | No. Only investment grade gold bullion qualifies | Yes | Yes |
| Ongoing cost | None, unless you pay for storage or insurance | Around 0.20% to 0.49% a year | Around 0.65% a year |
| Can you hold the metal | Yes | No | No |
Two of those lines do most of the work.
The 20% VAT. It is charged on new physical silver and not on a security, so a buyer of coins starts a fifth behind a buyer of an ETC, before the dealer's cut is even counted. Nothing else in this comparison is that big.
CGT and the wrappers. Outside a tax wrapper, gains above the annual exempt amount, £3,000 for the 2026/27 tax year, are taxable. An ETC can sit inside an ISA, where gains are free of CGT entirely. Physical silver cannot go in an ISA at all. But UK legal tender silver coins, Britannias among them, are free of CGT however you hold them, and that is the one place where physical wins outright on tax.
One warning worth stating plainly, because it is expensive to get wrong: silver bullion cannot be held in a SIPP. Investment grade gold bullion can. Silver, platinum and palladium cannot. A pension that holds them is treated as holding taxable property, which triggers unauthorised payment charges on both the member and the scheme administrator. If anyone offers you "silver in your pension", they mean an ETC or a fund, not metal.
What it costs to hold, over time
Physical is expensive to get into and free to keep. An ETC is cheap to get into and costs a little every year. Which one wins depends almost entirely on how long you hold it.
Take the VAT on its own: 20% paid once, against 0.20% a year for SSLN. At that rate the annual fee would need decades to catch up with the tax you handed over on day one. Second-hand silver narrows the gap considerably, and a large enough tax-free gain on Britannias can flip it the other way entirely. But if your only goal is to follow the silver price at the lowest cost, the ETC is usually the cheaper vehicle, and it is not close.
That is not an argument that buying physical is a mistake. It is an argument for knowing which one you are buying, and why.
So which suits you?
- You want the metal, in your hands, with nobody in between. Buy physical, expect to pay VAT and the dealer's cut for that, and look at Britannias if you expect a large gain, since they have no Capital Gains Tax to pay.
- You want the silver price at the lowest cost, ideally inside an ISA. An ETC does that job far more cheaply than coins can.
- You want a geared bet on a silver bull market and can stomach company risk. A miners fund, understanding it will not track silver neatly.
- You want silver in a pension. An ETC or a fund. Never metal.
Plenty of people hold more than one: coins for the part they want to be able to pick up, an ETC in an ISA for the part they want to trade cheaply.
What we compare here. Cheapest Silver compares physical silver only: real bars and coins from UK dealers, with VAT and delivery included. We do not rank ETCs or funds, and we have no relationship with any product named on this page. They are here because pretending they do not exist would not help you decide.