Following the Chancellor’s Spring Budget announcement earlier this week, we take a look at what it all means for your investments and the potential for whisky investment amid yet further tax changes, as well as a surprise announcement that the alcohol duty freeze will be extended.
News that alcohol duty freeze will be extended to February 2025 is a welcome surprise for the whisky and wider alcohol industry.
However, the current system still discriminates between alcohol beverage categories, with consumers who drink 14 units of cider a week being taxed £1.23 versus those who drink Scotch being taxed £4.42.
Scotch is already the highest-taxed alcoholic product in the UK. This contradicts the UK Government’s pledge to support Scottish Whisky – an industry that contributes £7.1 billion in exports to the UK economy and supports more than 66,000 jobs across the UK.
Scottish distilleries are also popular tourist attractions and generate crucial income for other businesses in their local communities.
Rising taxes don’t just affect producers or consumers of the spirit, but also impact the growing cask investment market – those wishing to explore alternatives to traditional savings accounts and stocks and shares.
Fortunately, whisky cask investment consistently outperforms other investment options and, unlike other asset classes, the value is not driven by economics alone, but by maturation of the product.
News of a further reduction to the tax-free allowance on capital gains set out in this week’s Spring budget comes as a blow to many investors and entrepreneurs alike.
Chancellor Jeremy Hunt reduced the tax-free allowance from £12,300 to £6,000 in April 2023, under the Autumn Statement in 2022. This week’s announcement sees the level at which people start paying tax on realised profits slashed again, from £6,000 to £3,000 from 6 April this year.
This means more people will have to pay tax on their investment profits.
In light of this news, we expect investors to tun away from ‘traditional’ investments and diversify their portfolios.
Alternative tax-free investment opportunities, such as Enterprise Investment Schemes, specific ISAs, wine and whisky, are all exempt from Capital Gains Tax (CGT) and provide a robust and reliable option which could outperform traditional investments.
In the case of whisky, HMRC classes it as a ‘wasting chattel’ – an asset that has a lifespan of 50 years or less. As whisky matures in its cask, a very small amount of alcohol – typically less than 2% per annum – evaporates into the porous wood – this is more commonly known as ‘The Angel’s Share’.
Whisky cask investment provides investors with a solution to invest funds in a tax-free opportunity.
While some tax restrictions are imposed once the whisky is moved from cask to bottle, if an investor keeps their whisky in its cask for the entirety of their investment journey, they are not liable to pay any CGT on the cask even after it has been sold, resulting in tax-free profit.
When it comes to more mainstream investments such as second homes, and stocks and shares not in an ISA or PEP, or business assets, the increase in CGT is likely to hinder not only long-standing investors but also put off younger people looking to invest for the first time.
This additional tax creates another hurdle for those looking to build their investment portfolio.
Alternative tax-free investment opportunities, such as whisky cask investment, provide investors with a tax-free haven that is both legal and safe.
Working with a trusted partner, such as Whisky 1901, investors can build a high-value asset portfolio in an industry which is going from strength to strength.
Indeed, the whisky cask market has ‘significantly outperformed all the traditional investment options in recent years’ according to the BC20 Whisky Cask Index, observing a projected growth of 14.95% in 2022.
The continued popularity of Scotch around the globe, has established whisky as a top-performing alternative investment, and one which we expect will become even more desirable over the years to come as financial uncertainty and volatile global markets continue.
