If you’re looking into buying a whisky cask (or have just inherited one) they you may be wondering what capital gains tax may be due on your cask?
Please always take professional legal advise on your tax responsibility. This information is provided as guidance only and you should always seek an opinion from a professional tax advisor.
Are Whisky Casks Liable for Capital Gains Tax?
The good news is that whisky casks are often seen as a wasting asset and as such are not subject to capital gains tax.
What is a Wasting Asset?
“A wasting asset is an asset with a predictable life of 50 years or less.”
That’s the HMRC definition from Guidance HS293
It is widely understood that as casks do not have a predictable life over 50 years and therefore whisky casks are not subject to capital gains.
Why is Whisky Classed as a Wasting Asset?
Even though it may be good news that your whisky cask won’t be subject to capital gains when you come to sell it, you may be wondering why your cask is classed as a wasting asset?
Casks are made from wood which is porous; some whisky is absorbed by the wood and some is lost to evaporation. On average of 2% of the whisky in a cask is lost each year – the rate accelerate with the age of the cask as the level of the whisky drops and the surface area for evaporation increases. This means that the life expectancy of most casks is well below 50 years – and is one of the reasons why it is so important that you get a regular regauge on a cask – find out what a regauge is here.
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What if I want to keep my cask for 60 years?
In October 2019 a bottle of Macallan from a 60-year-old cask of whisky laid down in 1926 sold for a record breaking £1.5million at Sotheby’s London. You may be wondering if you can keep your cask for the same amount of time and see the same returns. The short answer is it is unlikely.
The long answer is a bit more complicated. There are two issues with keeping a cask for so long and they are both linked to the evaporation from the cask. As well as losing liquid to evaporation the alcoholic strength of a cask also drops over time – because alcohol is more volatile than water so the alcohol evaporates more quickly (in Scotland at least). Whisky can only be classed as whisky if it is 40% or over, so as well as keeping an eye on the volume of liquid in the cask you must also ensure the alcoholic strength remains above 40%.
When you look at the 60-year-old Macallan as an example you will see that there was only enough whisky for 40 bottles left in the cask when they came to bottle it and the alcoholic strength was down to just 42.6%.
The final thing to consider is that this was a cask owned by the Macallan distillery and had all the brand power associated with that distillery. The cask had probably been managed as a long-term asset by them since it was laid down. They had likely kept this cask in highly controlled conditions in order to ensure that it would last to 60 years. They may have even filled the cask at a higher than usual ABV. It was also likely a large cask – a butt or a puncheon – and it would have been stored in the best part of their highly specialised cellar. It will have been painstakingly monitored and regularly regauged to ensure the volume and strength didn’t drop below useable levels.
Privately owned casks are therefore unlikely to reach such an age as private owners do not have the time or resources to manage a cask to take its lifetime to that age. In addition part of the appeal of the record-breaking bottles was the desirable name of the distillery – even if you did manage to get your whisky to sixty years your bottle probably wouldn’t make the same amount because of the other things collectors look for – read about the current whisky market here.
From our experience brokering the sale of privately owned casks, we see a general age range of 10-30+ years. This range is dependent on a number of factors, which we are happy to chat to you about, and you should perform a regular regauge to ensure your cask is in good health; healthy casks are the most valuable.
What other taxes do I have to pay on a whisky cask?
If you sell your cask in bond, you don’t have to pay any taxes on your cask – please also seek professional advice regarding your personal situation in terms of liable taxes as we are not financial advisors or accountants.
If you bottle your cask (we discuss why this might not be the best plan here) then you will need to pay duty on your cask and pay VAT on the purchase price of your cask. You will also need to get the proper licences to sell your bottles and may need to pay income tax on the profits.
What capital gains are due on whisky bottles?
Importantly, bottles of whisky are not classed as a wasting asset as their predicted lifetime is over 50 years.
If you inherit a bottle of whisky or a collection of whisky bottles you are liable for capital gains on that asset if “the disposal proceeds were more than £6,000” for a single item. Importantly where there are several items (a set) that are “worth more together than separately” the £6,000 total can apply to the set. In this case you will need an expert opinion as to whether the bottle collection is more valuable as a set or as individual bottles.
If you have inherited a cask or whisky bottle collection Mark Littler Ltd provide professional probate services and can provide cask valuations for inheritance tax and probate purposes.
You can email [email protected] or call 01260 218 718. Alternatively enter your cask details in the form below and Mark will get back to you to discuss your cask.
Please always take professional legal advise on your tax responsibility. This information is provided as guidance only.
