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Friday 14 May 2010

Wine – really a 'wasting asset'?

1981 Vieux Domaine de Taste, Côtes de Bourg*

An md of a  company intending to sell 2009 Bordeaux en primeur kindly sent me their prospectus today inviting comment. I picked out the following pasage:

'The tax advantage:

Wines purchased en primeur exclude import duty & VAT. Such tax-free status is maintained by storing wines in our customs-bonded regulated facilities (our partner is Vinothèque). Wine is classed as a  'wasting asset' by HM Revenue & Customs and as such any profit made on the sale of these products is generally fully exempt from Capital Gains Tax.' 

Amongst the fine wine trade there appears to be a certain amount of wishful thinking regarding Capital Gains Tax. Wine is regarded as a 'wasting asset' if it is undrinkable in less than 50 years from the time it was bought. Anyone buying First Growth 2009 Bordeaux en primeur should I would suggest expect to pay capital gains, subject to the normal thresholds, as it is surely reasonable to expect that the top 2009s will still be drinkable in 2060. Quite how 'drinkable' as definedby the tax authorities is an intriguing question. 

Whether wine is a 'wasting asset' or not depends in part on when you bought the wine. Buying top Bordeaux in its youth will mean that in good to great vintages it won't be classified as a 'wasting asset'. However, buying 1945 Mouton-Rothschild now may well mean that you have purchased a 'wasting asset' as this wine may not last another 50 years.

* Even quite modest wines from Bordeaux can last for decades. Take the 1981 Vieux Domaine de Taste, Côtes de Bourg that I opened this week. Although mearly 30 years old, not kept in ideal conditions and not from a stellar vintage this is still very drinkable with sweet evolved fruit. So if this Côtes de Bourg is still drinkable after 30 years and probably good for a few more years, although I doubt whether it will get better, a First Growth is likely to make its 50th birthday.

The official view


Tax Bulletin Issue 42


Issue 42


We have received a number of enquiries recently about the Capital Gains Tax treatment of bottles of wines, particularly "fine" wines, and spirits. This article sets out the position for transactions where the correct charge is to Capital Gains Tax. It is written on the premise that any transactions by private individuals involving the acquisition and disposal of such wines are not regarded as "trading" or an "adventure in the nature of trade" within the charge to Income Tax under Case I of Schedule D.

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.

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) TCGA. 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.

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 has 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.

If a particular bottle of wine is not a wasting asset, then any gain accruing on its disposal may nevertheless be exempt where the disposal proceeds for that single bottle do not exceed £6,000, Section 262(1) TCGA. Where however, a number of bottles are sold to the same person in one or more transactions, then the question might arise as to whether the bottles themselves constitute a "set". If they do, then the £6,000 limit would apply to the overall sale proceeds rather than the price fetched for any individual bottle, Section 262(4). This is a question of fact and 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.


  1. That's interesting. I'd always thought that it was not subject to CGT provided you were not "trading" or "dealing" in wine.

  2. Justin. Thanks. This is a fairly common misapprenhension in the wine trade. I have added the official view from the UK tax authorities.

  3. Jim, I've looked into this and taken professional advice as it was important to me in my investing (even more so now that the coalition gvt are plannning to double CGT!).

    The advice I recieved was that, notwithstanding the vaugue-at-best guidelines issues by the tax man, it would be very difficult in the real world for HM customs & revenue to make a convincing case that my wine WASN'T a wasting asset.

    The 50 year rule is not to do with whether the wine will be 'undrinkable' in 50 years as you suggest, but more specifically its predictable life span. This begs the all important question in tax law (as yet untested as far as I am aware) as to whether in the case of wine this relates to its total possible life span, or to the point at which it may reasonably be expected to be consumed - its true lifespan.

    Of course, the latter is unquantifiable, but as only a handful of bottles - even from the greatest vintages - remain unopened past 50 years one can make a convincing case that ANY wine has a predictable life span of less than the threshold.

    And to further furrow the tax man's brow the life expectancy of a given wine is both subjective and variable. The predicted drinkable lifespan is just that - a prediction (which may turn out to be wrong however credible the 'expert') and a case stored in a humidity & temerature controlled cellar will have a much longer lifespan than one stored in poor conditions - "dear mr tax man, I didn't want to pay you CGT so I stored my wine on top of my central heating boiler....".

    Whilst this may be flippant it nonetheless points the way to an endless number of difficulties for the revenue in tying us down for CGT. Even the possibilty of wine being corked throws a generalised judgement of a given wine into question. It is these nuances of wine as a commodity that makes life so difficult for the revenue.

    I have bought my wine on the assumption and expectation that I will NOT be paying CGT, but not so naively as to think the revenue won't issue new, clearer rules the future that change this.

    I am told that o date no-one has been persued by the revenue for CGT on the profits from the sale of wine. Does anyone know if this is true? If so, speaks volumes...

  4. Anon Thanks for this. I do know of an instance where where a non dealer was taxed when they sold wine but I need to check whether they were liable for capital gains or it was income tax.

    I would have thought it would difficult to argue that top 1959 Bordeaux is undrinkable or that the 1961s will be from 1st January 2011. Doubtless the Revenue would cite the appearance of these wines in auction as an indication of their predictable life span.

    Given the current interest in wine investment I assume that the Revenue will be looking at this more closely.

  5. Sure, but many buyers of 09, for example, will be buying and selling quickly so the revenue would need to deem them a non wasting asset now - not in 50 years citing auction listings - which is virtually impossible under current guidelines.

    I'd be very interested to hear more about this taxed individual - pls keep us informed. Thanks!

  6. Are the Revenue not likely to say that on the evidence of previously highly acclaimed vintages that 2009 will have a predictable life span in excess of of 50 years.

    Will check up on the taxed individual.

  7. It's an interesting point but referring back to my longer post I would argue that the few remaining bottles of 59 & 61 don't demonstrate 'expected' lifespan, but rather maximum. The vast majorty already drunk fall within the 'expected' window, with the remainder the anomoly.

    Having said 'I' would argue, actually I work in a large firm so am lucky enough to have access to tax lawyers and am simply regurgetating their opinion that paying CGT is highly unlikely under current guidelines.

    Of course, if the IR can find a way to clamp down on it they surely will, but for now I think we can all invest safely not expcting to give the con-dems 50% of our profits.

    Will hold judgement till you come back with more info on the taxed individual....

  8. Wine investment in the UK is in for a major shakeup, maybe not in the next 12 months but there is lots happening in the background. FSA, Tax and other very significant regulation. Tories will regulate, they always do.

  9. it seems that the decision is in the hands of the tax man at the time, as they is no real clarified rule that has been tested and set legal precedent... so you may or not be lucky