Posted by James McNeile, Partner
Guns n’ Rosés
As the Government and the Office of Tax Simplification look at the very real possibility of bringing Capital Gains Tax (‘CGT’) rates into line with income tax rates it seems like a good moment to review the position on some investments which may be able to be realised free of CGT. One would hope that the exemptions themselves would continue to apply even if the CGT rate increases.
CGT is a tax which is levied on the growth in value of an asset between acquisition and disposal. Certain dispensations apply, for instance for chattels a disposal for £6,000 or less will be exempt. Other particular types of chattel qualify by right for exemption whatever the size of the gain. The main categories for this are cars, decorations for valour and what are known as “wasting assets”.
Broadly wasting assets are, for this purpose, assets with a predictable life not exceeding 50 years. While this definition can go as wide as copyright, leasehold land, horses and plant and machinery, I am going to focus on just two, guns and wine, not least so that I could use my chosen title!
HMRC confirm in their CGT manual that plant and machinery will normally be treated as a wasting asset and so not subject to CGT on disposal. This applies whatever the life of the item turns out to be. Guns are accepted by HMRC as being machinery for these purposes (as are clocks and barometers) even if antique and potentially very valuable indeed.
There have, over the years, been different interpretations of the ability of all guns to qualify as machinery but the current Revenue published view is:
“While we take the view that the matter is not free from doubt, we would generally accept the argument that all types of guns should be treated together under the general description of “machinery” so that they would have a predictable life of less than fifty years”
The doubt they mention is as to whether a gun, which requires human interaction (the pulling of a trigger) each time the mechanism is activated, is to be classed differently to a clock which can continue to work independently through the interaction of its mechanical parts after having been wound up.
Wine is more complicated and nuanced. HMRC accept that most table wine will have a predictable life of less than 50 years because otherwise it could be expected to ‘turn to vinegar’. This means that it is a wasting asset and not subject to CGT on disposal. Importantly, the period of 50 years runs from acquisition, not original bottling, so the time limit may run from significantly after the year of the particular vintage. Fine wine, on the other hand can have a longer lifespan and fortified wines even more so. HMRC state in their manual that:
“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 fifty 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 is not unusually is kept (or some samples of which are kept) for substantial periods sometimes well in excess of fifty years.”
The much shorter lifespan of rosés means there is no doubt that they will be treated as wasting assets.
As you can see, ownership of some valuable items can be both tax efficient and enjoyable. I should perhaps end by saying that even drinking a high value wine could be seen as a disposal for CGT purposes, but perhaps a more enjoyable one than most!
If you would like to discuss the CGT, please contact James McNeile
01225 730 235 Email us
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