Wine Investors Face 'Huge' UK Tax Bill

by Robert Lee, Tax-News.com, London

08 October 2010

Investors in wine are building up huge unexpected tax bills having been misled over HM Revenue and Custsoms's (HMRC) tax treatment of wine, London-based partner of UHY Hacker Young, Mark Giddens has warned.

HMRC recently produced guidance warning of increasingly widespread misunderstanding that the value of wine investments for inheritance tax (IHT) purposes is based on the purchase price of wine rather than its current market value.

”With investment quality wine increasing in value over time, the difference between what investors believe would be paid in Inheritance Tax and what should be paid is potentially huge,” Giddens said, adding: “Our partners have also seen sales literature for wine investments incorrectly claiming that wine is a very IHT-efficient investment and that HMRC treat wine as a 'wasting' asset and therefore only value it at cost.”

Giddens adds: “Tax law is pretty clear on this point but wine investments are sometimes made in a very salesy and high pressure environment. Some salespeople may not even be aware they are giving incorrect tax advice. HMRC will be watching closely for this – it is part of a general trend for HMRC to clampdown on IHT evasion.”

Giddens said the problem stems from an increase in the popularity of wine as an alternative asset class. Interest in wine accelerated further after the weak performance of many conventional asset classes during the recession. Fine wine prices are also expected to increase because of a forecast growth in demand from Asia.

UHY Hacker Young have warned executors of wills, who are often relatives of deceased persons, that they could face a penalty of up to 100% of the amount of tax lost by Revenue and Customs if they file an incorrect IHT return.

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