Tax Year Q&A with Jonathan Hook, Founder & CEO and qualified accountant of 35 years

As we step into the new tax year, considerations around tax implications, such as:

Inheritance Tax (IHT) | Capital Gains Tax (CGT) | Adjustments to the Annual Exempt Amount (AEA) for individuals and personal representatives, come to the forefront.

So earlier this month, we sat down with MacInnes Whisky founder, Jon Hook, to delve into these topics and explore why investing in whisky casks offers long-term returns alongside unique tax advantages.

If you would like to discuss a whisky cask opportunity, get in touch, invest@macinneswhisky.com

Does HMRC automatically calculate Tax?

Jon: If you submit a tax return online, HMRC will calculate your tax and NI bill automatically. For those not required to submit a tax return, for example, those on PAYE, HMRC will undertake a PAYE reconciliation to check that the correct amount of tax has been paid. Where it has not, HMRC will either send out a P800 tax calculation or a PA302 simple assessment.

How are investments taxed?

Jon: There are two elements to this. The best way to explain it is to use the ‘tree and fruits’ analogy. There are ‘revenue’ gains eg dividends and interest (the fruit) and there are ‘capital gains’ (the tree) Both are taxed differently and without going into every tax rate or exemption, every taxpayer gets £1,000 of tax-free dividends (going down to £500 in 24/25) and there is a means-tested ‘personal savings allowance’ for interest income.

How much savings can I have before paying tax?

Jon: It is all about the amount of interest earned not the amount of savings you have. If a taxpayer earns £20,000 per annum in an employed job they can earn £1,000 in interest tax-free however if a taxpayer is on £55,000 per annum they only get £500 tax-free. Different rules exist for very low-income earners who get a higher threshold.

How much investment income is tax-free in the UK?

Jon: Investment income was covered in question 2 (above), but we only looked at the ‘fruits’ - not the sale of the ‘tree’. Capital gains tax is complicated but basically in 23/24, each taxpayer gets £6,000 of tax-free capital gains (known as the Annual Exempt Amount (AEA) and going down to £3,000 in 24/25). The rates on capital gains are predominantly 10% for the gain that falls inside the basic rate band and 20% for gains that fall in the higher rate band and upwards. The current rates for residential property gains are 18% and 28% (but going to 24% in 24/25).

Do I need to keep a record of my whisky cask for tax purposes?

Jon: Certain assets are fully EXEMPT from Capital Gains tax. Capital gains tax is a tax due on the profit of an asset at its point of sale, which includes classic cars, whisky casks and non-wasting chattels bought and sold for less than £6,000. Whisky casks are classed by HMRC as a ‘wasting asset' and as such, they are not subject to Capital Gains Tax. This is due to the ‘angel’s share’ or minor evaporation that occurs to cask whisky each year whilst in the bonded warehouse, it has the unique tax status of being capital gains tax (CGT) free so when you sell your cask for a profit you pay no tax on it.

Therefore, you do not need to keep a record of your cask for HMRC. Contrary to popular belief, gains from cryptocurrency are FULLY TAXABLE.

What are ‘Tax-Free Gains’ and what does this mean for whisky investment?

Jon: ‘Tax-Free Gains’ refers to profit made on an investment that isn’t subject to tax. With the AEA for capital gains tax purposes going down to a paltry £3,000 per annum in 24/25 we have seen a huge rush on whisky cask investment as those who used to enjoy a small tax-free profit on shares etc are now getting heavily taxed making whisky with its good steady (and often extraordinary gains over the long run) a more attractive investment alternative.

How much money can I give away tax-free?

Jon: Each year you can give away £3,000 without any Inheritance Tax (IHT) risks. Also if you give out of your regular income it does not fall into the ‘Potentially Exempt Transfer’ (PET) regime year?

Whereby you need to survive 7 years to avoid a charge to IHT for your estate.

At MacInnes, we had a client earning £60,000 after tax and wanted to avoid an IHT issue if he passed away within 7 years. As he only spent £20,000 of this income per annum he was able to ‘gift’ his son and daughter a cask each up to his ‘headroom’ amount of £40,000 in the knowledge that his estate wouldn’t suffer if he passed away the next day! Even if you are gifting from ‘capital’ ie investments the rate of IHT is tapered so if you pass away say 4 years after gifting the rate is reduced to 24%. 

About Jonathan Hook

Jon has gained over 35 years of experience in accountancy and financial services, from working with Price Waterhouse Cooper (PwC) to running his multi-award-winning firm, Norwich Accountancy. It’s this ethos of understanding money, understanding people, and financial planning, that underpins the MacInnes team. Inspired by a passion for whisky, and the potential it holds for more than just a lucky few, we’re driven by our financial expertise and a desire to help all our clients make wise choices with their money.

You can contact Jon at jon@macinneswhisky.com if you wish to talk further about your personal circumstances.