Investment in fine wine is often advertised as ‘FREE OF CAPITAL
GAINS TAX…’ and ‘INHERITANCE TAX IS CHARGED ON THE ORIGINAL
PURCHASE PRICE…’.
The
truth is that the tax implications for wine are not that black and
white. For a comprehensive overview on the CGT and IHT implications
for wine collectors, please review the following extracts below.
HM REVENUE & CUSTOMS: TAX BULLETIN ISSUE 42
Wines & Spirits: The Capital Gains Tax Treatment.
‘We have received a number of enquiries recently about the Capital
Gains Tax treatment of bottles of wines, particularly "fine" wines,
and spirits. This article sets out the position for transactions
where the correct charge is to Capital Gains Tax. It is written on
the premise that any transactions by private individuals involving
the acquisition and disposal of such wines are not regarded as
"trading" or an "adventure in the nature of trade" within the charge
to Income Tax under Case I of Schedule D.
‘Where bottled wine is purchased, each bottle is a chattel for
Capital Gains Tax purposes. As gains on the disposal of chattels
which are also wasting assets are generally exempt from Capital
Gains Tax, Section 45(1) Taxation of Chargeable Gains Act 1992 (TCGA),
then the first question is whether bottled wine is a wasting asset
or not.
‘For Capital Gains Tax purposes a wasting asset is one whose
predictable life, from the point of view of the person acquiring it,
does not exceed 50 years, Section 44(1) TCGA. Whilst this definition
would clearly apply to cheap table wine which may turn to vinegar
within a relatively short period, even in unopened bottles, our view
is that it would certainly not apply to port and other fortified
wines which are generally recognised to have a very long storage
life.
‘Between these extremes, there are a number of fine wines which are
quite drinkable after a substantial period although of course the
taste alters over that time. With these the basic consideration, in
our view, is whether the wine has turned to vinegar or has merely
matured. Of course in practice, most wine is drunk well below the
age of 50 years and in that sense it is very difficult to consider
the issue in isolation. However, where the facts justify it, we
would normally contend that wine is not a wasting asset if it
appears to be fine wine which not unusually is kept (or some samples
of which are kept) for substantial periods sometimes well in excess
of 50 years.
‘If a particular bottle of wine is not a wasting asset, then any
gain accruing on its disposal may nevertheless be exempt where the
disposal proceeds for that single bottle do not exceed £6,000,
Section 262(1) TCGA. Where however, a number of bottles are sold to
the same person in one or more transactions, then the question might
arise as to whether the bottles themselves constitute a "set". If
they do, then the £6,000 limit would apply to the overall sale
proceeds rather than the price fetched for any individual bottle,
Section 262(4). This is a question of fact and would depend on:
(a) whether the bottles are "similar and complementary" - which
would require the wine in them to have been produced from the same
vineyard in the same vintage year, and
(b) whether the bottles are of greater worth when sold collectively
than when sold individually.’
HM REVENUE & CUSTOMS: NEWSLETTER –
AUGUST 2010
Wine
Valuation.
‘It has
been brought to HMRC’s attention that information in the public
domain indicates that for Inheritance Tax purposes wine cellars are
valued at the purchase price rather than the value at the date of
death. This is incorrect.
‘Section 160 IHTA1984 states that for Inheritance Tax purposes the
value of any property is the price it might reasonably be expected
to fetch if sold in the open market at that time.
‘Therefore it is clear that a wine cellar must be valued at its open
market value for Inheritance Tax purposes at the time of the
relevant occasion of charge.’
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