'Wine and Tax'
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You do not usually have to pay income or capital-gains tax (CGT) on any profits. Wine is exempt from CGT because it is regarded by the Inland Revenue as a "wasting asset" with a predicted lifespan of less than 50 years.
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If you keep the wine in bond, you also avoid paying VAT and Duty.
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The wine will form part of your estate for Inheritance Tax (IHT) purposes. The definition of wine given by the Capital Tax Office is that of a ‘wasting asset/chattel’. The Revenue practice has been to value wine at acquisition cost, not current value.
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Wine can be left to beneficiaries per the instructions contained in your Will.
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It must be emphasized that gains by an individual are free from taxes, whereas gains arising from wine sales by a Company or trader are likely to be construed as trading receipts and taxed.
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The following information is taken from a bulletin issued by the Inland Revenue in August 1999 concerning the capital gains tax treatment on wines and spirits:
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'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.
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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) TGGA. 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.
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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 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.
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If a particular wine is not a wasting asset, then any gain accruing on its disposal may nevertheless be exempt where the disposal of the proceeds for that single bottle do not exceed £6000, section 262(1) TGGA. Where, however, a number of bottles are sold to the same person in one or more transactions, then the question might arise as to the whether the bottles themselves constitute a 'set'. If they do, the £6000 limit would apply to the overall sales proceeds rather than the price fetched for any individual bottle, Section 262(4) TGGA. This is a question of fact that 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'
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We recommend seeking advice from an accountant or tax expert.
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