Following an email correspondence with AHB, in which he told me that Port was subject to Capital Gains Tax, I have investigated the case for the UK.
So CGT doesn’t apply to a ‟wasting asset”.[url=http://www.legislation.gov.uk/ukpga/1992/12/section/45/enacted]Taxation of Chargeable Gains Act 1992, §45(1)[/url], wrote:! no chargeable gain shall accrue on the disposal of, or of an interest in, an asset which is tangible movable property and which is a wasting asset.
The standard to apply is whether it has ‟a predictable life not exceeding 50 years”.[url=http://www.legislation.gov.uk/ukpga/1992/12/section/44/enacted]Taxation of Chargeable Gains Act 1992, §44(1)[/url], wrote:In this Chapter ‟wasting asset” means an asset with a predictable life not exceeding 50 years
So HMR&C think that CGT applies to Port because ‟port and other fortified wines ! are generally recognised to have a very long storage life.”HMR&C Guidance Note, dated August 1999 and entitled [url=http://www.hmrc.gov.uk/manuals/cgmanual/cg76901.htm]CG76901 - Wasting assets: wines and spirits[/url], wrote: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.
But there is room for squabbling about this guidance note. Let’s consider Port from 1963. Would a 1963 bought at harvest (yes, I know, but hush) still be within the ‟predictable life” mentioned in the Act. Yes, some bottles of 1963 are delicious. But more are showing themselves to be tired, and some are well past it. So it depends on the purpose of the asset. Purposes to consider include:
- To reliably give drinking pleasure;
- To have some chance of giving drinking pleasure;
- To be of curiosity value.
Fifty-year-old Port from a big year fails the first of these, but passes the second and third. So it is at least arguable that the guidance note is wrong and that Port is not taxable. Good luck trying that.[url=http://www.legislation.gov.uk/ukpga/1992/12/section/44/enacted]Taxation of Chargeable Gains Act 1992, §44(3)[/url], wrote:The question what is the predictable life of an asset, and the question what is its predictable residual or scrap value at the end of that life, if any, shall, so far as those questions are not immediately answered by the nature of the asset, be taken, in relation to any disposal of the asset, as they were known or ascertainable at the time when the asset was acquired or provided by the person making the disposal.
Further, consider ‟which not unusually is kept (or some samples of which are kept) for substantial periods sometimes well in excess of 50 years.” The 1963 declaration was massive. What proportion of those tens of thousands of dozen are still in cellars? Probably single digits of percentage points. Compare that to ‟not unusually is kept”. Of course, collectors collect anything and everything. But those buying Port for its purpose, say, the Cambridge and Oxford colleges, finished their 1963 Vintage in the 1990s, at an age of about 30 years. So it could even be argued that the Guidance Note is internally inconsistent.
The rules are sufficiently non-obvious that even the Financial Times has them wrong.
The FT, in an article entitled [url=http://www.ft.com/cms/s/2/9908dc3a-d068-11df-afe1-00144feabdc0.html]HM Revenue targets wine cellars[/url] and dated 5 Oct 2010, wrote:Fine wines under fifty years old are exempt from CGT as the Revenue considers them a ‟wasting asset”.
