Executors of wills are facing the prospect of paying unexpected tax bills for failing to record the market value of the wine cellars in estates, accountants claim.
Revenue & Customs is now warning executors that wine stored as an investment must be marked down for inheritance tax purposes at the estimated sale price at the time of its owner’s death and not at the price first paid. This raising of a red flag by the Revenue follows a surge in examples of poor practice and revelations that the websites of some wine brokers still offer misleading guidance on the topic.
“It is clear that a wine cellar must be valued at its open market value for Inheritance Tax purposes at the time of the relevant occasion of charge,” a statement from the Revenue claims. “It has been brought to HMRC’s attention that information in the public domain indicates that for Inheritance Tax purposes wine cellars are valued at the purchase price rather than the value at the date of death. This is incorrect.”
Wine cellars do not escape the inheritance tax net if the value of a family’s estate exceeds the current IHT threshold of £325,000 for individuals and £650,000 if a spouse or civil partner has died.
Mark Giddens, partner with the accountants UHY Hacker Young, points out that problems frequently arise with wine valuations as executors often determine the value of assets based on letters from the deceased.
The rules which determine the way capital gains tax (CGT) is levied on wines are almost as complicated. Fine wines under fifty years old are exempt from CGT as the Revenue considers them a “wasting asset”. But expensive fortified wines and port, which have been around for longer, both face CGT under the Revenue’s rules depending on their price. A 28 per cent CGT rate now applies on asset disposals taken care of by trustees.
Interest in buying fine wine has risen in recent months on the back of feverish demand from Asia and the high quality of the 2009 Bordeaux vintage. Prices have picked up as well, with the Liv-ex Fine Wine 100 index, which tracks the prices of 100 sought-after wines seeing a 190 per cent rise in the last five years.
Simon Staples, sales director with Berry Brothers & Rudd, supplier to the royal family since the reign of George III, claims that his employer sold 75,000 cases of wine worth as much as £95m from last May through July alone.