At GORDON PWC, we continue to emphasize the advantages of cask investments, particularly in the premium tequila sector. One of the most compelling reasons to consider these assets is their tax-advantaged status. With the exemption from capital gains tax (CGT) still in place, investing in tequila casks offers a unique opportunity for tax-free gains. This becomes even more significant as countries like the UK implement tax hikes, leading investors to explore alternatives that can shield them from increasing tax burdens.
As the founder and CEO of GORDON PWC, I frequently highlight the benefits of holding casks of whisky and tequila, especially in light of the recent capital gains tax increases. Whisky has long been recognized as a high-end investment, similar to fine wines, while tequila—produced solely in Mexico—is rapidly gaining popularity as an investment asset, particularly with younger generations. Both whisky and tequila casks qualify as “wasting assets,” which means they are exempt from capital gains tax, making them an increasingly attractive option as tax rates rise on other asset classes.
How Tequila Investments Could Beat Traditional Assets
ith the UK Budget’s focus on capital gains tax and wasting assets, tequila investments offer a unique opportunity for savvy investors. Read more on how tequila investments could beat your traditional assets.
As anticipated, the UK budget announcement on 30 October brought unwelcome news for many investors: a significant hike in capital gains tax (CGT). The lower CGT rate will rise from 10% to 18%, while the higher rate will jump from 20% to 24%, both effective from October 30th, 2024. Furthermore, the CGT annual allowance will remain at £3,000, and the ISA allowance will stay at £20,000, providing little relief for traditional investors. However, the key exemption that investors should be paying close attention to remains the exemption for “wasting assets,” including cask investments in whisky and tequila.
Wasting assets are defined as assets with a predictable lifespan of 50 years or less. Due to the natural evaporation process in cask aging, commonly referred to as the “angel’s share,” whisky and tequila casks can qualify for this exemption. This means that gains from the sale of these casks are typically not subject to CGT, making them particularly attractive investments in the current tax landscape.
With CGT rates now increased, the value of this exemption becomes even more pronounced. Investors holding traditional assets such as stocks, bonds, ISA’s, or businesses will face higher tax liabilities on their capital gains, but cask investors can continue to enjoy CGT-free gains on their maturing spirits, assuming the exemption remains intact.
The exemption is likely to remain in place, as it brings in relatively low revenue compared to other tax areas, making cask investments an increasingly popular alternative. The combination of potentially strong returns from these niche markets and the CGT advantages offers a compelling case for portfolio diversification.
In a climate where the UK government is tightening fiscal policy to drive growth, investors seeking to reduce their tax exposure are expected to lean more heavily into asset classes like whisky and tequila casks, which can provide both above-market returns and protection from rising tax rates.
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