The Tax Benefits of Wine Investing (And the Bottles to Bet on in 2022)

For most of us, buying a bottle of wine is as simple as looking for something we’ll like and paying for it. After all, wine is for drinking. As long as you can afford the bottle and it has the notes that you love, you’re making a good purchase.

But there are some people who buy wines for reasons other than drinking.

Those people are wine investors.

They purchase rare and exclusive bottles with the goal of selling them at a later date to make a profit. Wine investing is a complicated art that requires you to understand what could lead to a bottle of wine gaining value. It’s also a way to experience several tax benefits that reduce your tax bill come the end of the year.

In this article, we explore the tax benefits of investing in wine and highlight a collection of bottles that we think will be safe bets for 2022 and beyond.

The Tax Benefits of Wine Investing

To understand the tax benefits of wine investing, you must first know what a “wasting asset” is.

A wasting asset is any type of asset that has a lifespan of 50 years or less from the time that you buy it. For example, it’s unlikely that a vehicle you buy today will still work in 50 years unless you invest heavily in maintenance to keep it running. The same goes for many machines used in industry, which often have limited lifespans before they need replacing.

Wasting assets are important because you can purchase them tax-free.

How does this apply to wine?

Many wines are considered wasting assets because they can’t be aged for 50 years or more. Take the table wine you purchase from the store as an example. It’s likely that wine can only be aged for five years to less before it loses its qualities, making it a wasting asset. Of course, many more expensive and exclusive wines also fall into the wasting asset category.

The problem is that not all wines are wasting assets. For example, some Bordeaux wines, especially those that come from stellar vintages, can be aged for over 50 years. If you purchase one of these wines prior to bottling, you’ll likely have to pay a wine tax on top of the cost of the wine.

Still, most fine wines are wasting assets. That fact reveals our first benefit as you don’t have to pay an additional tax on fine wine like you would on a non-wasting asset, such as property.

Next, we have capital gains tax (CGT) to consider.

Typically, an investor pays CGT on any profit they generate that results from the sale of an asset. Again, property is a good example. If you’re a property investor, you may have to pay CGT if you sell a property for more than what you paid for it.

However, the nature of wine means that it’s often exempt from capital gains tax.

Why?

Again, it comes down to the fact that wine is a wasting asset. According to ACCA Global, wine is also a chattel. This means it’s an item of personal property that is tangible, movable, and identifiable. When combined with the fact that wine is a wasting asset, ACCA Global points out why this benefits investors from a tax perspective:

“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.”

What does all of this mean for your tax strategy?

As an investor, you usually don’t have to pay additional taxes when you buy a bottle of wine. Of course, you still pay VAT and taxes related to buying consumer goods. But there is no additional tax levied because wine is a wasting asset. Then, when you sell the wine, you usually don’t have to pay CGT. That means you get to keep the full profit while reducing your overall tax burden.

The Wines to Bet On in 2022

Now that you understand the tax benefits of wine investing, the next question is obvious:

Which wine should you invest in?

It’s a tough question to answer as fine wine investors don’t tend to buy from regular retail outlets. Furthermore, most of the wines you find on store shelves aren’t suitable investments. Instead, you have to look for wines that are rare and have some sort of intrinsic value that makes them worthwhile to fellow collectors.

So, where should you start your search?

French wines tend to see the most growth. The 2014 vintage of Ermitage Le Pavillon is expected to achieve 48.2% growth in 2022, reaching a value of £1,860 in the process. For the big spenders, the Dom. Armand Rousseau, Chambertin from the same year looks set to achieve 48.1% growth, reaching a price of £41,850.

On a more general level, Champagne is usually a good choice. The value of Champagne has increased constantly during the 12 months up to the end of the second quarter of 2022, with total growth amounting to 50.8%. Any wine from the Burgundy 150 is also a good bet, as those wines have enjoyed growth of up to 50.3% during the same period.

The Final Word

As an asset, wine is proving to be a safe haven for capital in 2022. While the investment wine sector achieves growth, traditional safe havens, such as gold, are declining. In fact, year-to-year gold prices were down 2.5% in June 2022. The first half of 2022 also saw a 20.6% decline in the S&P 500, in addition to a 3.4% decline in the FTSE.

By contrast, wine investments delivered growth of 11.1% during the same period.

Simply put, wine is one of the safest investments of 2022. And with the help of Xtrawine, you may just find a few vintages that make worthwhile additions to your collection.