Words by Mark Biss, founder and CEO of London Cask Traders
The Capital Gains Tax (CGT) hikes announced by Labour Chancellor Rachel Reeves in the Autumn Budget have led to increased interest in so-called ‘alternative’ investments where the higher rate of CGT (up 20% on gains to 24% for higher rate taxpayers) doesn’t apply.
But the options among alternatives are limited. Profits made on the sale of luxury investments – such as fine art, vintage cars, antiques and jewellery – are all subject to the same CGT rules as stocks and shares. There is, however, one alternative asset it feels almost patriot to add to an investment portfolio: cask whisky.
Cask whisky benefits from a unique exemption
Why is cask whisky exempt from CGT? As you would expect, the secret ingredient is the cask itself. Because a tiny amount of whisky evaporates from the cask over time (just 1-2%, known in the whisky trade as the ‘angels share’), cask whisky is deemed by HMRC to be a ‘wasting asset’ with a predictable lifespan of no more than 50 years.
And as long as the whisky remains in the cask, and stored in Scottish warehouses, both Excise Duty and Value Added Tax (VAT) are suspended. Those taxes only become payable after the whisky leaves the warehouse to be bottled. In other words, the longer you leave your cask whisky investment in place to mature, and potentially to increase in value, the better.
The same CGT exemption isn’t afforded to bottled whisky, however, which after bottling has a predicted lifespan of more than 50 years. So, if you’re planning on buying and selling bottles of your favourite tipple, you should know you are liable for CGT on each individual asset where the proceeds of the sale are more than £6,000. Selling bottled whisky also requires obtaining several licences, including a personal licence and a premises licence, even if you plan to sell the whisky online. By contrast, buying and selling whisky while it’s still in the cask really is the simplest and most tax-efficient option for investors.
An independent asset class
Aside from those tax-efficiencies, there are other benefits to owning cask whisky as part of a broader portfolio. In particular, the returns from your cask whisky investment are not dependent on the ups and downs of stock markets. As any long-term investor will tell you, owning ‘uncorrelated’ assets that lend your portfolio more stability can be very helpful during periods of market volatility or economic downturns. Owning cask whisky can also be a welcome hedge against higher inflation, as owning the asset for longer should potentially see it increase in value as prices rise.
Whisky is a global phenomenon
It always makes sense to invest in a product that’s in high demand. And make no mistake, whisky is a drink in demand worldwide. According to the Scotch Whisky Association, 1.35 billion bottles were exported in 2023, for a value north of £5.6 billion. That’s the equivalent of a bottle sold every 43 seconds. The United States is the largest market for Scotch whisky by value, but the Asia-Pacific region is catching up: Singapore, Taiwan, China and Japan are all big consumers of single malt Scotch.
How easy is it to invest in cask whisky?
Owning a cask whisky investment couldn’t be simpler. Scotch whisky distilleries sell cask whisky in bulk to brokers such as London Cask Traders, which them sells them directly to private investors. The whisky casks are left to mature in fully-insured government-bonded warehouses for several years, the longer the better. When the investor decides to sell – we recommend a holding period of several years to allow the whisky to mature – they can either sell their casks to a whisky bottling company, sell them at auction or to another investor, all without triggering a CGT bill.
Can a business invest in whisky casks?
It’s also possible to make an investment in cask whisky through a company, making it even more tax-efficient. As well as benefitting from the CGT-exemption, the costs associated with storing and insuring the casks can be treated as business expenses, reducing the amount of taxable profits for the company.
Let our experts guide you
Of course, it’s unwise to invest in an asset just for the tax benefits. Or as the experts say, “don’t let the tax tail wag the investment dog”. Tax rules are subject to change, so if you’re considering buying cask whisky as part of your investment portfolio, it’s worth talking to talk to the professionals. The whisky experts at London Cask Traders are here to help you every step of the way. Our experienced team will hand-select the most promising casks and bottles to help drive maximum returns and enhance your collection’s value. We’ll use our expertise and industry knowledge to help ensure you make savvy choices you can raise a dram to.
