Worried about CGT? Whisky cask investments could be the answer.

The dust has finally started to settle following Chancellor Rachel Reeves’ first Autumn Budget, which was a sober one in every sense. It’s been a longstanding tradition that the Chancellor can drink alcohol during their speech, a privilege predecessors including Churchill, Gladstone and Disraeli gladly took up. But you have to go as far back as 1995, when Kenneth Clarke sipped Scotch Whisky at the despatch box, for the last Chancellor who drank anything other than water. As Rachel Reeves prepared the ground for a £40 billion tax raise, there was very little likelihood that she would buck the recent trend.

She started by suggesting “painful” choices had to be made, and in total, it was businesses that carried most of the burden. The decision to raise an estimated £25 billion by increasing employer National Insurance Contributions (NIC) and cutting the NIC threshold was arguably the most controversial. For most high earners, the pain will come further down the road, in the form of VAT on private schools next year and changes to inheritance tax. However, the Budget did carry a nasty sting in the tail for investors, many of whom might now be rethinking their investment portfolios and the assets they hold.

Capital Gains Tax hiked

Changes to Capital Gains Tax (CGT) had been widely trailed in the months before the Budget, as low hanging fruit for a Chancellor looking to generate additional revenue for the Treasury. As a reminder, CGT is charged on profits made from selling assets such as a second home or investments such as stocks and bonds, and personal possessions (known as ‘other chargeable assets’). Under the current regime, higher rate taxpayers pay 20% CGT on gains made from other chargeable assets, and 24% on gains from selling a second property. Basic rate taxpayers pay CGT at 10% on other chargeable assets and 18% on a second property.

In her Budget statement, Rachel Reeves announced that from 30 October 2024, the lower rate for CGT would be increasing from 10% to 18% and the higher rate from 20% to 24%. The rates on residential property were left unchanged at 18% and 24%, respectively. Clearly, this hike will have an impact on investors, and many will be interested in hearing about alternative investment options that don’t come with a CGT burden. Cask whisky could fit the bill nicely.

How does Cask whisky investing work?

Cask whisky has become an increasingly popular form of alternative investment in recent years. According to Global Market Insights, the global whisky market increased to almost $70 billion in 2023, and is on track to reach $125 billion by 2032. [1] It’s the drink of choice in fast-growing markets such as India, Japan and China, and because it’s an alternative asset class uncorrelated to equity or bond markets, it can also serve as a valuable ‘hedge’ as part of a well-diversified investment portfolio.

Cask whisky is also a rare form of asset, because any profit made on its sale is completely free from CGT. Because a tiny amount of whisky evaporates from the cask over time (just 1-2%, known by whisky experts as the ‘angels share’), the whisky is classed by the taxman as a ‘wasting asset’ with a predictable lifespan of no more than 50 years. Also, whisky stored in Scottish warehouses has both VAT and Excise Duty suspended until the cask leaves the warehouse to be bottled.

[1] https://www.gminsights.com/industry-analysis/whiskey-market

A straightforward investment

Owning a cask whisky investment couldn’t be simpler. Scotch whisky distilleries sell cask whisky in bulk to brokers such as London Cask Traders, who 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 they decide to sell, investors can either sell their casks to a whisky bottling company, sell them at auctionor to another investor, without triggering a CGT bill.

As London Cask Traders’ Finance Direct Arjun Rajawat explains: “It wasn’t a surprise that the Budget would see changes made to CGT rates, and many investors will feel that now is a good time to diversify their investments further than they had previously. Cask whisky investing is extremely tax-efficient, its performance isn’t correlated to other asset classes, and it’s a tangible asset that is growing in popularity worldwide. It could be the answer that many investors are looking for.”

The Scotch Whisky industry received another Budget boost with the news that the government was removing mandatory duty stamps for spirits and increasing investment in the Spirit Drinks Verification Scheme. This scheme helps producers to verify the geographic origin of their products, and . This will help make whisky verified as being produced in Scotland even more of a valued global export. Perhaps Kenneth Clarke will raise a glass of his favourite tipple in appreciation.

Let our experts guide you

Cask whisky investments remain exempt from CGT, making them a worthwhile alternative to traditional investments. 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.