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 when you come to sell it?
This information is provided as guidance only, based on current UK tax laws. Please always take professional legal advise on your tax responsibility.
Are Whisky Casks Liable for Capital Gains Tax?
The good news is that in the UK whisky casks are classed as a wasting asset and under UK tax treatment that means they are not subject to capital gains tax.
What is a Wasting Asset?
According to HMRC, Guidance HS293, “a wasting asset is an asset with a predictable life of 50 years or less.”
The natural evaporation experienced by whisky casks as they mature (known as the angel’s share), means whisky casks do not have a predictable life over 50 years. So under current tax laws profit from the sale of 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 between 1% and 4% of the whisky in a cask is lost each year. This means that the average life expectancy of most casks is below 50 years.
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What If I Want To Keep My Cask For 60 Years?
In November 2023 a bottle of Macallan from a 60-year-old cask of whisky distilled in 1926 sold for a record breaking £2.1 million ($2.7 million). 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%.
While the story of the 1926 cask is that it was forgotten until it was rediscovered in an 1980s inventory, in the modern market older casks are meticulously managed assets. Casks that are selected with the intention of maturing them over 50 years are monitored closely by distillery staff, stored in the best part of their most highly specialised warehouses, sometimes smaller casks will be combined to prolong maturation. This level of management is not usually suitable for private individuals.
Private cask owners do not have the time or resources to manage a cask to take its lifetime to that age. But they also don’t have the brand appeal to generate such high values. That means even if you did manage to get your whisky cask to sixty years your bottle wouldn’t have the same brand appeal as an official release. What’s more, you only need to look at newer, older releases from Macallan that are being sold for well under the million pound mark, to see that it is not age alone that generates value with whisky.
From our experience brokering the sale of privately owned casks, we see a general age range of 10-30+ years. We suggest aging casks to at least 18-years-old and aiming for a minimum 10 year investment. However long you plan to keep your cask, you should perform a regular regauge to monitor rates of evaporation and help decide when best to sell.
Other Taxes On A Whisky Cask?
If you sell your cask in bond, you don’t have to pay duty or VAT. However casks are not exempt from other taxes (for example inheritance tax). 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 then there will be other taxes due. Once bottled whisky is no longer classed as a wasting asset so capital gains may be due on your profits. You will need to pay duty+VAT and VAT on the purchase price of your cask, find out how to calculate bottling costs here.
Capital Gains On Whisky Bottles?
Bottles of whisky are not classed as a wasting asset as their predicted lifetime is over 50 years. This means Capital Gains may be due, dependent on your situation.
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.
Please always take professional legal advise on your tax responsibility. This information is provided as guidance only.
