Expert warns that wine investment is not as tax efficient as you might think

News - Tax

Written by Ray Clancy

Wednesday, 13 October 2010 10:25

UK investors in wine are building up huge unexpected tax bills having been misled by salesmen over how HM Revenue and Customs treat wine, it is claimed.

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,’ warned Mark Giddens, London based partner of UHY Hacker Young.

‘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,’ he said.

‘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,’ he explained.

Giddens believes that HMRC will be watching closely for this as part of a general trend for HMRC to clampdown on IHT evasion.

He believes that 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 global economic downturn. 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.