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18 March 2022

Capital Gains Tax - UK

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Posted in: Wine Investment

Tagged: Closer Look

Investing in fine wine can bring potential long-term capital growth, portfolio stability during market volatility, and of course the pleasure of discovering and tastings new wines. But fine wine investments can also offer potential tax benefits in the UK, as current HMRC practice means they are generally exempt from Capital Gains Tax (CGT).

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“Fine wine can be a tax-free investment due to HMRC regarding it as a wasting asset if it is said to have a predicted useful economic life of less than 50 years. As such, it enjoys an exemption from Capital Gains Tax. Although every individual’s situation is different, if the wine is held as an investment in a wasting asset, individuals would not have to pay CGT upon a sale at a profit. Where HMRC believe that a wine will have a life of more than 50 years, the sale of wine held as an investment at a profit will be subject to CGT but can benefit from the chattels exemption, so disposals of less than £6,000 proceeds will be tax-free.”

Richard Citron, partner at Blick Rothenberg, a tax, accounting and business advisory firm

Fine wine’s tax status becomes increasingly important as April 5th looms, and many UK taxpayers and their advisors are giving much thought and attention to the end of the financial tax year.

CGT thresholds and allowances are high on the agenda and for some, the need to both maximise these and take advantages of any CGT/HMRC allowable vehicles, come into focus. Currently the CGT threshold is £12,300 per person and any gains after that (Annual Exempt Amount) are taxable in any given financial year. The UK government-approved Individual Savings Accounts (ISAs) provide a savings account of up to £20,000 per person where the gains are CGT exempt.

Outside the ISA structure, there are a limited number of approved CGT exempt investment opportunities, investing in fine wine is one of them. As a matter of practice, HMRC has treated fine wine as a ‘wasting chattel’ or ‘wasting asset,’ which “means an asset with a predictable life not exceeding 50 years.” This limited lifetime of fine wine means HMRC practice has been to not charge you CGT on any profits you make by crystallising any gains accrued in that financial year.

We have seen a growing number of our UK tax-based customers creating investment portfolio collections with us not just for the capital appreciation opportunities but as a means to diversify into this alternative asset and its beneficial tax treatment characteristics.

As an illustrative example, Cult Wine Investment’s main index grew in value by 42.6% in the five-year period to the end of 2021. Simply put, a £100,000 fine wine investment five years ago could have appreciated in value by £42,600 and sold without incurring a CGT charge on this profit 1. If an investor managed to realise a similar gain on another asset - such as stocks or cryptocurrency – where CGT would likely apply, they might have to pay CGT of £6,060 (depending on the level of their total income).2

For some, the journey of fine wine is more than just capital appreciation and possible tax benefits. It brings a world of experiences from education, tasting, food pairing knowledge, and opportunities to expand knowledge and enjoyment through combining travel to visit vineyards and meet wine makers and learn more about specific grape varieties and regions.

At Cult Wines, we have created a balance of investment, collection and experiences to bring this exciting world to our customers.

If you would like to learn more about this topic as April 5th looms, please contact us to learn more.

 

 



[1]
Past performance is not indicative of future success; the performance was calculated in GBP and will vary in other currencies. Any investment involves risk of partial or full loss of capital. The Cult Wine Investment Performance is a hypothetical tool. The results depicted here are not based on actual trading and do not account for the annual management fees that may be charged to a Cult Wines customer which range from 2.25% to 2.95% depending on the size of the portfolio, and there is no guarantee of similar performance with an investor’s particular portfolio.


[2] Based on £12,300 CGT exemption for individuals. 10% CGT rate (18% for residential property) for individual’s entire capital gain if overall annual income is below £50,270; 20% CGT rate (28% for residential property) for individual’s entire capital gain if overall annual income is above £50,270


* Cult Wines provides segregated and individually managed portfolios to clients. Cult Wine Investment Performance represents the aggregated performance of those client portfolios over the period covered based on unaudited figures. Index information is included for illustrative purposes only: each individual portfolio might have performed differently. To calculate Cult Wine Investment Performance, Cult Wines rebase each wine held in clients’ accounts (reflecting all wines under management) from the date they are placed in the account by assigning them an index number of 100 reflecting entry price in the portfolio and calculates the return to date on the appreciation (or depreciation) of that wine from 100. The index performance is an aggregation of all wines held by Cult Wines clients, and their returns. Cult Wines uses the midpoint of the quoted price on the independent exchange Liv-ex in its calculations and in rare instances where a quote is not available, Cult Wines will fair value the wine using prices from Wine Searcher and other independent sources. Your actual portfolio return will vary from the Cult Wine Investment Performance based on your stated objectives, portfolio composition, and fees and will be available for you to see daily in your account as prices are updated from the Liv-ex daily, or in the rare circumstances mentioned above, at the Cult Wines fair value. Past performance is not necessarily indicative of future results. The Cult Wine Investment Performance is calculated in GBP and results in (USD or  CAD$) will fluctuate based on currency exchange rates.

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