Tax Benefits of Investing in Fine Wine

If you’re thinking about getting a portfolio started, there’s one benefit from investing in fine wine that you may not have considered: the exemption from the United Kingdom’s Capital Gains Tax. 

As with any financial decision and consideration, though, it is important to receive guidance from a chartered accountant who will be able to analyse your individual situation. 

Her Majesty’s Revenue & Customs (HMRC) considers wine to be a wasting asset. So, what does that mean for your portfolio and tax threshold? 

What are “Wasting Assets”? 

A wasting asset is an item that has a limited life span and irreversibly declines in value over time. Other examples of a wasting asset include vehicles (of course, not considering rare collector cars in that category) or machinery. 

Broadly speaking, a wasting asset are those which have a predictable useful life of no more than 50 years. Luckily for our potential investors, wine can also be considered a wasting asset, due to the fact that a bottle of wine generally wouldn’t be palatable after 50 years. As most of our readers know, though, most of the vintages we interact with here at Liquid Opulence are drinkable far longer than that. 

A recent report states that HMRC’s tax treatment of fine wine is favourable (generally), making fine wine investment incredibly attractive to potential buyers. 

Fine Wine and the Capital Gains Tax

It has to be mentioned that we are in the midst of an uncertain economic downturn brought on by the unending COVID-19 pandemic. With that in mind, everyone should be thinking about securing their finances and considering investments that are resilient to this type of unforeseen economic turbulence. 

In fact, we’ve written about the wine industry’s resilience during economic downturns in the past. A few factors contribute to this: 

• Fine wine has minimal correlation to global equities; supply and demand dictate prices. 
• Scarcity of a wine drives up the price for remaining bottles of that vintage, a future-proof factor investors can rely on. 
• Wine investment is a long-term game, with many vintages not reaching their true drinking potential unless many years of maturing. So, monthly or annual price fluctuations won’t impact the long-term investment potential. 

There are a few scenarios in which you would be thinking about the Capital Gains Tax in relation to your wine collection. If you are simply buying (or were gifted) a nice bottle of wine that you intend to let mature for a few years before imbibing, this doesn’t apply to you. If we instead consider an individual who is buying and selling wine to diversify his or her holdings, that individual must stay within the remit of Capital Gains Tax. 

If the latter person also establishes a portfolio and adds to it over time, carefully selecting certain vintages from particular vineyards with the goal of improving said portfolio, it’s extremely likely that our example person is also within the remit of Capital Gains Tax. 

The person who would have to consider taxation, though, would be a speculator looking to buy and sell in the very short term with the express goal of making a profit. In this case, that person is not within the remit of the Capital Gains Tax but will be making profits and losses subject to Income Tax. 

So, what does that mean for you? 

Two important tax exemptions exist for fine wine enthusiasts. The Wasting Assets, which we explained earlier, and the Chattels Exemptions. As a quick refresher on Chattels: 

“A chattel which is wasting will be exempt from capital gains tax and any losses on it will not be allowable. So, if a taxpayer buys a racehorse or fine wine and later sells it at a profit, the gain will be exempt from capital gains tax because it is a gain on the sale of a wasting chattel.” – ACCA Global

As we said before, HMRC looks to see if a particular fine wine is regularly kept for more than 50 years, but this is widely regarded as a major grey area. The investment-grade wines have the capacity to age at least that long, but many are consumed before reaching peak maturity. The “predictable” life is extremely subjective and the law is nuanced and rarely enforced in regards to fine wine buying and selling. 

It’s best to know the predictable life of a bottle at the time of acquisition, directly from the seller, so you know if you may be put under a tax microscope for the purchase. 

As mentioned, it is in any investor’s best interest to receive guidance from a chartered accountant before delving into the world of luxury wine investments. 

Wine can be an incredible addition to your portfolio, and our seasoned team of experts can help you navigate the exclusive playing field of luxury wine investment. 

Our U.K. wine brokers are always up-to-date with current market movements, emerging trends and market value. Liquid Opulence can also guarantee pristine storage conditions and security for your holding. 

If you’re interested in a free consultation with one of our fine wine brokers, please contact us today.