Who said wine was a wasting asset?by
Tax advisers at UHY Hacker Young are warning of ugly surprises in the family cellars following advice from HMRC of misunderstandings around the treatment of wine investments for Inheritance Tax. HMRC's Newsletter for Trusts and Estates Practitioners originally raised the issue in August.
"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," it warns.
"Section 160 IHTA1984 states that for Inheritance Tax purposes the value of any property is the price it might reasonably be expected to fetch if sold in the open market at that time. Therefore 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."
UHY Hacker Young tax partner Mark Giddens warned that with the strong performance of investment wine prices in recent years, the difference between what investors believe should be paid in Inheritance Tax (IHT) and what should be paid is potentially huge.
The firm, too, has seen over enthusiastic sales literature incorrectly claiming that wine investments are IHT-efficient investment because HMRC treats wine as a "wasting" asset and value it at cost.
"Tax law is pretty clear on this point but wine investments are sometimes made in a very salesy and high pressure environment and good salesmen always sound plausible – some may not even know they are giving incorrect tax advice," said Giddens.
"HMRC will be watching closely for this – it is part of a general trend for HMRC to clampdown on IHT evasion."
UHY Hacker Young added that executors of wills, who are often a relative of the deceased person, could face a penalty of up to 100% of the amount of tax lost by if they file an incorrect IHT return.
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