How fine wine is treated for tax.

01 VAT & Duty

All wine is subject to Import Duty and VAT - but neither is charged while the wine is held In Bond in an HMRC-regulated warehouse.

Duty and VAT only become payable if you choose to remove your wine from bond, at the HMRC rate applying at that time. They are charged directly to the owner by the bonded warehouse, on behalf of HMRC, before the wine can be released.

In short: wine sold In Bond is not subject to Duty or VAT unless it is removed from the warehouse.

02 Capital Gains Tax

Many transactions by investors in fine wine could be subject to Capital Gains Tax - unless the wines purchased can be classed as a “wasting asset”.

To be classed as a wasting asset, a wine needs an expected life at the time of purchase of no more than 50 years - something that has been widely written about. HMRC are vigilant in identifying fine wines that are regularly kept for longer than 50 years.

In summary, fine wine investment is generally tax-efficient provided no individual case is held for longer than 50 years. This depends on your circumstances, so please take your own advice.

03 Income Tax

Income Tax on profits generally applies only to individuals actively trading large volumes of wine with a view to making a profit. Where it does apply, losses can usually be offset against profits, or in some cases against other income.

The overwhelming majority of wine investors will not be viewed as traders. Unless you are a high-profile individual who has publicly declared an intention to invest in wine as a profitable pursuit, Income Tax should not generally be an issue.

04 Inheritance Tax

Fine wine carries no special Inheritance Tax advantages. On death, the portfolio forms part of your estate at its then-market value, irrespective of the original purchase cost.

However, if you are considering lifetime gifts as “Potentially Exempt Transfers”, wine may be a suitable asset. Provided each transfer falls within the wasting-asset exemptions, your beneficiary can benefit from the same advantages you would have.

Handing down a portfolio - and educating the next generation of enthusiasts - can be an enjoyable way to manage the value of your estate. Provided you survive seven years from the date of the transfer, the gift will not be subject to Inheritance Tax; if you die before the seventh anniversary, any liability tapers on a sliding scale between years three and seven, while any growth in value in that time falls outside your estate.