The tax-free coloured diamond investment scam
According to these scammers, you won't have to pay a penny in Capital Gains Tax or Inheritance Tax if you invest in these coloured diamonds. Utter codswallop.
A posh-sounding guy called James phones me – and immediately disproves what I wrote here last time. If you remember, in Rare earth metals: the scam that's got the FSA worried I said that while scam sellers use the same patter whatever they are pushing, they regularly move on to some new asset. They morph seamlessly from landbanking to carbon credits to rare earths.
But diamonds are forever and James was trying to sell me coloured diamonds, a scam that has been around for at least three decades.
Now pretty shiny objects in interesting hues and shades can be attractive. Local craft shops sell packs of coloured “jewels” ready to thread into necklaces and bracelets for a few pounds. And children get hours of innocent pleasure, making items for themselves, friends and family.
Here, however, we are talking serious money, not pocket money. James has me down as “good for £15,000” although he assures me that is only entry level.
James promises I can make a lot of money because diamonds have gone up in value every year for the past four decades, always led by the coloured versions which is something I cannot verify.
Free of all tax!
But he went beyond the normal “rarity” argument. He told me my profits would be free of all UK taxes including Capital Gains Tax (CGT) when (not if) I sold the stones for a massive gain and that there would be no Inheritance Tax charge when I died.
I had never heard of this so I asked why. “The diamonds are part of the jewellery trade and that has a special exemption so they are Capital Gains Tax and Inheritance Tax free. The taxman can't touch it.”
Well, who am I to doubt the expertise of someone who cold calls me?
So I turned to the HMRC website (which should know tax rules better than James) where I found this on the CGT page.
Typical taxable possessions
Personal possessions that may be liable to Capital Gains Tax when you sell or dispose of them include:
coins and stamps
The “may”, of course, depends on whether your total profits from all sales (including shares) in the tax year exceed the annual CGT personal exemption (currently £10,600).
And I am afraid, James, that when it comes to dying, it's everything that you owned, even clothes or pots and pans if they have any residual second hand value, which are taxable.
So it's not “OK, fantastic” as he said at least once in every sentence.
Why you won't pay tax
But perhaps what James really meant was that there would be no gains so there could be no capital gains tax. And because the stones would be worth very little, there would be a correspondingly small sum on death.
He failed to mention the VAT to pay when the stone is delivered to the promised “secure storage facility close to my home”. That's 20%. But he did say there would be no problem identifying my diamond as each one is now barcoded with a mark only visible in ultra violet light.
I told James that my £15,000 was earmarked for income, rather than capital gains. This would be no problem as my stones would produce a steady 15 to 30% tax-free gain each year, which, he assured me, was a lot better than a bank account.
Despite a long conversation, I still have no idea how I can take a regular income given his advice to hold the gems until late 2019. At his lower estimate, my £15,000 would be worth nearly £40,000 by that point and at the 30% return, it would be worth £94,000.
Even assuming those figures are correct (and that's an almighty big if), his exit strategy involved selling in seven years' time to a private individual, a collector via auction, a hedge fund, an investment institution, a jeweller, or a “lifestyle company”.
I do not know why a lifestyle company would want to buy gems – I thought it was a firm organising university balls or charity polo matches. But James assured me they were special companies that dealt with the very rich who, it appears, cannot get enough coloured diamonds.
Being polite, I did not ask James why hedge funds, investment institutions, jewellers and lifestyle companies did not buy from him now before the prices soared, rather than waiting until 2019 and then paying me shedloads more.
James was eager to know my mobile phone number so his “senior colleague” (the salesperson sitting opposite him) could call me. I refused to give it. He responded that “the computer would not allow me to post the brochure without at least two additional pieces of information”. He already had my home phone and address.
I told him that I did not have a mobile phone – miraculously the eight pager arrived this week.
There will be no cheque – for £15,000 or even 15 pence – winging its way in return.