Considering Gifts and Inheritance Tax
Kate Marsh | 04.11.2019
09.07.2018 Philip Whitcomb
Since the age of 18, I have always had an interest in wine. Not just the drinking of it, although I do enjoy that part, but also the laying down and collection of fine wines.
Fine wine investments are often advertised as a tax-free investment, and the average value of fine wines in 2016 rose by around 25%. Whilst such an investment can be tax efficient, there are a number of key considerations which need to be kept in mind. The tax treatment is not as black or white (or perhaps that should be red and white) as you might suppose.
If you haven’t got around to drinking it before you die, then your executors will need to consider what value (if any) attaches to your wine collection. For inheritance tax purposes, HMRC have now made it clear that the value of the wines forming part of your estate should be the value as at the time of death and not the value as at the time of purchase. In other words, it should be treated like any other asset of a deceased’s estate. The collection of wines should be valued in accordance with section 160 of the Inheritance Tax Act, 1984 as the price the wine might reasonably be expected to fetch if sold in the open market.
So what would the position be if you decide to sell a bottle or two of wine rather than keep or drink it? The tax to consider on a disposal of any asset during your lifetime is capital gains tax (CGT). HMRC regard that any bottle of wine is a chattel and would be subject to CGT unless it is classed as a wasting asset. This is an asset with a predictable life at the time of acquisition not exceeding 50 years.
For everyday wine that you might purchase in a supermarket there is no question of it having a predictable life beyond 50 years and so CGT is not an issue. However, a fortified wine designed to withstand significant ageing, such as premium port, probably does have a predicable life beyond 50 years and so CGT does become a factor.
The grey area comes with fine wines which might have the capacity to age for half a century but are likely to be consumed before that date. HMRC’s statement says that “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”.
The question of the predictable life of a bottle of wine is objective, and is to be answered by reference to the evidence at the time the bottle as acquired by the person now disposing of it.
A number of factors need to be considered, including the vintage, terroir, provenance and storage conditions at the time of purchase. To that end, keeping the relevant records when the wine is purchased is essential.
CGT is not payable if on the sale of wine which is not considered to be a wasting asset, the gain made since acquisition is less than £6,000.
However, if a number of bottles are sold to the same individual, HMRC may regard this as a “set” and then only one £6,000 exemption will apply to the overall sale proceeds.
This would apply where the bottles being sold are “similar and complementary” for example produced by the same vineyard and in the same vintage year and when the bottles sold together are of a greater worth then when sold individually.
Collecting fine wines like other forms of collecting can be fun and rewarding, but it can be beneficial to take proper tax advice on any future disposal.