A figure in the world of "cask investments" – the high-end tequila sector for example – points to the continued tax-advantaged status of such assets. These considerations take an added edge when the prospects of further tax rises are being debated in the UK and elsewhere.

In the following brief commentary, Samuel Gordon (pictured), founder and chief executive of Private Whiskey Clients, in Miami, sets out what he says are the tax advantages to holding casks of whisky and tequila. Whisky, as readers know, is already established as a luxury investment asset, akin to fine wines. Tequila, produced in Mexico, is rapidly emerging as an investable asset and has a younger demographic appeal. 

Samuel Gordon

The UK Chancellor of the Exchequer, Rachel Reeves, is due to present her budget to lawmakers in parliament on 30 October, and there is much speculation over whether she will raise capital gains taxes, squeeze savers and tighten inheritance taxes, or even change course towards non-doms. However, whatever the specifics, it seems unlikely that taxes overall are going to fall in this annual budget. With that in mind, Gordon sets out the tax characteristics of cask-based holdings of whisky and tequila. The editorial team is pleased to share these thoughts; the usual editorial caveats apply to views of guest writers. Email tom.burroughes@wealthbriefing.com if you wish to respond.

With the UK Labour Party set to announce its budget on 30 October, it seems likely that some tough decisions are coming. While they've promised not to raise taxes on "working people" (meaning no changes to income tax, VAT, or corporation tax), there's been plenty of speculation about other areas being targeted: pensions, capital cains tax, inheritance tax, and possibly even a new wealth tax.

Labour is trying to close a £22 billion fiscal gap and, as Keir Starmer mentioned in his 27 August speech in Downing Street, things may "get worse before they get better," with the "broadest shoulders" expected to bear the biggest burden.

For UK cask investors, there’s some good news: Cask investments currently qualify for a CGT exemption since they’re considered "wasting assets." These are assets with a lifespan of 50 years or less. Due to natural evaporation (the "angel’s share"), casks usually need to be bottled within that period to avoid significant loss of liquid, making them eligible for this exemption. 

While the government could technically remove this exemption, I think it’s unlikely, as the revenue they’d gain would be relatively small compared with other potential tax hikes. I recently spoke with Saagar Modasia, a chartered St James’s Place-approved wealth advisor, who agreed that the exemption is probably safe. 

Modasia suggested that the government might align CGT with income tax rates, meaning higher earners could pay the same rate on capital gains as they do on income, in line with Starmer's comments about the "broadest shoulders" carrying the heaviest burden.

If CGT rates do increase, the current exemption for cask investments could become even more valuable – assuming it remains in place. Cask investors would avoid the higher rates that might apply to other assets. It's also worth noting that even if the exemption were removed, tax changes are rarely applied retroactively. This means that investments made before any potential changes could still qualify for the exemption, though this is, of course, speculative.

With this in mind, we have seen a notable increase in UK-based investors diversifying their portfolios by increasing their allocation to asset classes, such as whisky and tequila casks, that not only compete with market returns but also offer CGT advantages. While continuing to invest in traditional assets such as property and stocks, these investors are placing greater emphasis on alternatives with more favourable tax treatment, particularly given the current economic environment.

(Disclaimer: This is not tax advice, but just Gordon’s personal take based on research.)