Clients are advised to contact their own advisers for definitive information and advice on its application to their own circumstances.
Different laws apply in other jurisdictions, whether or not the wine is physically held in the United Kingdom and clients are advised to contact their own advisers regarding international tax issues.
Section 160 of the Inheritance Tax Act 1984 states that Inheritance Tax is applied to the value of any property at the date of application, not at its original purchase value.
“It is clear that a wine cellar must be valued at its open market value for Inheritance Tax purposes at the time of the relevant occasion of charge” (HRMC Newsletter August 2010).
For Inheritance Tax purposes a ‘wine cellar’ is any collection of wine forming part of an estate.
Capital Gains Tax
Capital Gains Tax does not apply to ‘wasting assets’, those whose predictable life does not exceed more than 50 years (Section 44(1) Taxation of Chargeable Gains Act 1992).
Issue 1: ‘Predictable life’
The law makes it clear that table wine is a wasting asset, whereas a fortified wine that can withstand significant ageing, such as a premium port, is not.
“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”. (HRMC Tax Bulletin 42)
Much fine wine constitutes something of a grey area. It may have the capacity to age for half a century or more. The ‘predictable life’ is therefore a crucial consideration. This lifespan is taken from the point of view of the owner at the point of purchase, and as such must be decided objectively.
Issue 2: Capital Gains Tax Exemptions
If the profit from the sale of a single bottle of wine not considered a wasting asset does not exceed £6,000, Capital Gains Tax does not apply (Section 261(1) TCGA).
If a number of bottles sold to the same individual, in one or a number of transactions, may be considered a ‘set’, then the £6,000 pound gains limit applies to the sale of all bottles affected (Section 262(4) TCGA).
Bottles sold to the same individual may be considered a ‘set’ when they are:
“similar and complementary”- i.e. they belong to the same vintage and the same vineyard, and
of greater value when sold collectively, rather than as individual bottles. (HRMC Tax Bulletin 42)