PAM Guide to Wealth Management

Alternative investments

There is an array of alternative investments that are tax efficient. These include wine, antiques, commercial woodland and race horses.

Buying wine can be an attractive investment, as significant gains can be made. Of course, considerable expert knowledge is required. There are also high transaction costs. The market is driven by sentiment that affects liquidity and you need insurance and proper storage. Furthermore, it is not a short-term investment and the cost of investment can be high.

The current treatment of wine by HMRC, however, makes it a wasting asset if it can be used in 50 years time. Any gains for such wine are free from CGT. As wine is a capital investment, there is also no income tax payable. However, if you are classed as trading in wine the profits of the sales will be treated as trading income and subject to income tax.

Any chattels, such as art, worth less than £6,000 are free from CGT. Investments in commercial woodland are free from IHT if held for a minimum of two years.

Owning race horses is not cheap but there are some tax advantages. These include the fact that horse owners can reclaim VAT on bills, race horses are exempt from CGT and owners operating in a partnership, or as sole traders, can offset any losses against their other taxable income. There are restrictions on the use of losses against other income. The maximum allowable loss is restricted to the greater of 25 percent of the total income or £50,000. There are also restrictions on the use of losses for what is termed 'inactive' partners, which is defined as those working fewer than 10 hours per week. Due to the nature of the business, in theory it is possible that losses will be allowable for up to 11 years. Land on which the stud is based may qualify for agricultural property relief. As we saw earlier in the chapter, this is exempt from IHT if held for at least two years.

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