CG76901 - Wasting assets: wines and spirits
The following text is reproduced from Tax Bulletin 42 published in August 1999:
“WINES & SPIRITS:
THE CAPITAL GAINS TAX TREATMENT
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:
- 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
- whether the bottles are of greater worth when sold collectively than when sold individually.”