Fine wine investment has often been seen as a tax efficient way to make a profit and one of the reasons many are now getting into this sector. While there has been a little more focus in recent times by the Inland Revenue because of the large amounts of investment being made on fine wines, the tax position remains fairly clear.
The two key areas you need to consider are Capital Gains and Inheritance Tax. Always seek advise from Fine Wine Investment Experts.
Capital Gains Tax
Bottles of fine wine are considered chattels by the Inland Revenue. If they are also considered a wasting asset, in other words they are likely to degrade over a certain, then fine wine is exempt from Capital Gains Tax.
The key here is whether a fine wine investment is a wasting asset or not. This is defined as one which has a life that does not go beyond 50 years. This means that a fine wine will not be considered a wasting asset if it is expected to last beyond this period. If you own a 1945 Lafite which is still drinkable then the Inland Revenue will be within their rights to tax you, should you choose to sell the bottle.
The notion of how long a bottle of wine is drinkable for is, of course, a particularly big grey area. The condition of the bottle when it was bought needs to be taken into account and, without opening it, deciding on this objectively (which the Inland Revenue has a duty to do) can only be problematic. Predictable life for wine isn’t from the time that it was bottled either, it stretches from the moment the bottle was purchased by the owner or investor.
The life of a fine wine varies from vintage to vintage and from vineyard to vineyard. Other factors include how it was made and how it has been stored. There is, indeed, some suggestion that fine wines produced today have far less longevity than those made 50 or 60 years ago.
Assuming your bottle has been categorically shown not to be a wasting asset, then you are still exempt from CTG if the proceeds don’t go over £6,000. If you have a number of bottles being sold to the same individual, however, then the proceeds of the total sale is taken into account rather than the cost of a single bottle. This depends on the bottles being from the same vineyard and vintage and also whether the return is greater because they are being sold as whole rather than individually.
Many investors don’t get into fine wine to sell and profit but to pass onto their loved ones. This brings into play the prospect of inheritance tax. For many years, wine sellers and merchants were telling investors that it was the purchase value that mattered. The Inland Revenue has recently clarified that the value of fine wine collections is based on their current value rather than their initial cost, however. That means the price any collection or bottle might be expected to fetch on the open market today.