Are you looking to take advantage of the tax benefits fine wine can offer by investing in the current financial year?
The 31st January tax return deadline has many of us considering our financial affairs in the last weeks of the 2022/ 23 period. The economic conditions remain extremely challenging with forecasters predicting a deep recession, unemployment rising by over 5% and house prices slipping by 8% this year. With inflation currently standing at 10.5%, investors need to be proactive about protecting capital and achieving growth in 2023.
Wine performance in high inflation
Equities are remaining unpredictable and UK property prices have been in a downward trend with annualised growth falling from 12.8% in May 2022 to 2% at 31st December 2022. The benefit of diversifying an investment portfolio with a stable, tangible asset that has maintained strong growth as inflation has risen is obvious. In the twelve months leading up to 31st December 2022 fine wine investments recorded average growth of 13.1% compared to property’s 2% and the FTSE 100’s 0.9%.
Fine wine compared to UK residential property, equities and gold
Asset / index | 1 Year |
Liv-ex Burgundy 150 | 26.7% |
Wine – Liv-ex 1000 | 13.1% |
UK residential property | 2% |
Equities - FTSE 100 | 0.9% |
Gold | 0.5% |
Data source: Wine, equities and gold - Liv-ex.com, Property data: Halifax BS at 31.12.2022
How will new tax changes affect investors in 2023?
Investors in shares and property accept that Capital Gains Tax and Stamp Duty must be factored into their investment calculations. The Budget changes announced in November last year come into force in the new financial year from April 2023. Investors need to remember that certain allowances are being cut.
The tax-free dividend allowance is being halved from £2,000 to £1,000 in April and then slashed again in April 2024 to £500. This means that those investors with a ‘modest share portfolio’ may pay tax for the first time.
Capital Gains Tax changes
Changes to Capital Gains Tax (CGT) were included in Chancellor Hunt’s fiscal plans to find between £40billion to £55billion. The Treasury will have more claim on the profits made in the sale of those assets that attract Capital Gains Tax, such as shares held outside of a tax-efficient vehicle like an ISA, property, art and whisky in certain formats, from April.
The annual CGT exemption amount will be halved from £12,300 currently to £6,000 from April 2023 and then slashed again in 2024 to £3,000. That’s a reduction of nearly 75 per cent of the tax-free amount, and for property investors particularly painful as the rate paid is higher.
Basic rate taxpayers currently pay 10 per cent on gains and 18% on second home profits. Higher rate payers pay 20 per cent and 28 per cent respectively, a sizeable chunk of the value of the asset.
Fine wine – a CGT exempt investment
Given the tax changes looming, investors should consider those assets that may be exempt. Fine wine is classed by HMRC as a ’Wasting Asset’, i.e it does not have a predictable life beyond 50 years. As a result, gains made from wine investment do not generally attract CGT.
Burgundy investment wine achieved average growth of 26.7% and Champagne 18.7% last year, with individual wines seeing significantly higher price growth, fine wine is delivering impressive tax-free growth. See our latest Fine Wine Market Report for more information on wine investment performance.
Tax efficient fine wine storage
Another tax benefit of investing in fine wine includes the ‘off-shore’ treatment of wine stored in specialist bonded warehouses. Duty and VAT are not triggered on these wines until they are removed from storage and those investors who sell their wine whilst still in bond, which most do, never cause these taxes to be applied.
For more information see our specialist Report on Tax and Fine Wine in 2022 / 23 and speak to your financial advisor. Contact our expert team for information on the fine wine market and current opportunities on 0203 384 2262.