There are few certainties in life but what you can count on is you get taxed! If you want more stability and tax efficiency in financial planning, then look at fine wine.
It’s that time of year again, all over the country accountants are frantically dealing with last-minute tax return submissions. Some investors are looking over their shoulders at lost opportunities to be ‘tax smart’ in the April 2022/ 2023 financial year, whilst considering how to make the most of the final weeks of this current tax year.
Of course, we aren’t here to offer you tax advice, but we can certainly help provide more ‘food for thought’ for you to discuss with your specialist advisor.
What are the tax benefits of wine investment?
- Profits are generally exempt from Capital Gains Tax
- VAT and Duty can be avoided through In-Bond storage
- Fine wine can be used for tax-efficient estate planning
- Income tax does not apply
Why is fine wine a tax-efficient investment?
As with all investments, HM Revenue and Customs set the agenda and fine wine falls into two categories for UK taxpayers:
- Fine wine is classified by HMRC as a ‘wasting asset’, i.e. wine is not deemed to have a life longer than 50 years. Consequently, any profits made from the sale of fine wine are generally treated as exempt from Capital Gains Tax (CGT).
- Wine investors can also apply the Chattels exemption to a limited value to be tax efficient.
CGT Allowance reduces again April 2024
The tax allowance from the sale of profits made from asset sales such as shares and property was slashed from £12,000 to £6,000 in April 2023. This is being halved again to £3,000 at the start of the 2024 / 2025 financial year.
Investors who have previously avoided tax on share sales will need to be aware of this in tax planning. Diversifying your portfolio with CGT exempt assets like fine wine will help optimise returns.
Fine wine, Inheritance Tax and estate planning
Inheritance Tax (IHT) is getting increased political attention at the moment and there is talk about potential changes should the Tories manage to defy all the current odds at the next general election. At this point fine wine as an asset does form part of an estate on demise. However the value is based on the purchase price of the wine, not the market price at probate valuation.
With careful planning fine wine can be tax efficiently transferred to children and grandchildren and any profits on sale would be exempt from CGT. Like other treasure assets, such as watches, jewellery and art, careful estate planning can manage tax liability and be emotionally rewarding.
Our view on why to invest in wine in 2024
As you consider your options for investment in 2024, for the remainder of the current tax year and the next, you will be looking at growth potential and different levels of return you can expect from the assets you own. There is no crystal ball and whilst you can look to the past for pointers, there is no guarantee on future performance. However, we can make some key decisions.
In fine wine, 2023 was a year of adjustment and we commented on this as data became available. Across the year there was an average 14.1% reduction in prices on Liv-ex, the largest secondary market for fine wine.
Some regions were impacted more than others. Burgundy and Champagne saw the highest levels of post-pandemic growth in 2021 to 2022 with some wines seeing triple digit growth. However, some of these wines then experienced the larger price declines. Italy and Bordeaux remained more robust and saw their market share grow in the year, but still some softening in price. So, where does that leave us in 2024?
The year ahead could be a very opportunistic period for wine investors. Prices across the sector are positioning to offer significant scope for future growth. Some of the world’s most iconic wines are available at prices not seen for years - and from Prime vintages. 2024 could be an important period for new investors to enter the wine market and for current ones to bolster their wine portfolios for future gains.
The tax treatment of fine wine is an important consideration, especially with the pending reduction of the CGT allowance this year. It's important to remember everyone's circumstances are different and you should seek expert advice.
For more detail see our Report on Tax and Fine Wine and speak to a member of our expert team on 0203 384 2262.