Wine Investing Tax: What Is It and How Does It Work?

by Elaine Lau

Wine is considered a tax-efficient asset compared to most traditional forms of investments.

So, what exactly is wine investing tax, and how does it work?

Let’s discover why wine is not always tax-free and then check out how wine investing tax works.

We’ll then explore why you should invest in fine wine and how Vinovest and other platforms could help you.

Why Wine Investment Is Not Always Tax-Free

Wine investment is one of the best alternative investment options that offer several benefits, such as great savings on taxes.

However, contrary to popular belief, wine investment isn’t always tax-free. The truth is that some wine bottles may qualify for zero taxes as long as they’re classified as ‘wasting assets’.

What does that mean?

A ‘wasting asset’ is a type of asset that has a lifespan of less than 50 years from the time when you buy it. In this case, your wine bottle will be tax-free only if it will age for less than 50 years from the time you invest in it.

For example, First Growth Bordeaux wines from an excellent vintage can age for more than 50 years. So, if you buy these wines En Primeur (before bottling), you should expect to pay some wine taxes.

However, buying a 40-year old First Growth Bordeaux wine bottle is a different story. Since this bottle is less likely to age a further 50 years, it would be classed as a wasting asset.

Now, let’s explore the various wine investing taxes.

How Does Wine Investing Tax Work?

Here are the four types of wine investment taxes and how they work.

VAT
Income Tax
Capital Gains Tax
Inheritance Tax

1. VAT

All wines are subject to Value-Added Tax (VAT) and import duty charges.

However, you won’t have to pay VAT or excise duty if your wines are stored in a bonded warehouse. That’s because these expenses are paid for by the person who eventually takes the wine out of the bond.

2. Income Tax

Income tax on fine wine only applies to high-profile individuals who frequently trade at high volumes.

So, if you’re a private wine investor with a relatively smaller wine investment portfolio you don’t have to worry about income or sales tax.

3. Capital Gains Tax

A fine wine bottle that’s classified as a wasting asset is usually not subjected to short and long term capital gain taxes.

However, capital gain tax for wine might differ depending on where you live.

For example, in North America (particularly the United States), any capital gain from wines is subject to collectible taxes. Meanwhile, in countries like the United Kingdom, capital gain taxes don’t apply to any wine that’s classified as a “wasting asset.”

4. Inheritance Tax

Fine wine investment doesn’t have any inheritance tax benefits, but it can potentially qualify for an exempt transfer.

What does this mean?

When you hand over your wine portfolio at least seven years before your death, the inheritor receives the same tax advantages you had.

However, the tax rate on potentially exempt transfers varies. It works on a sliding scale that starts with 32% being liable after year three, and ends with 0% being liable after year seven.

Now, let’s explore why you should add the world’s finest bottles to your wine investment portfolio.

Should You Invest in Fine Wine?

Here are the reasons why you should put your money on an alternative investment option like fine wine:

Stable Price Appreciation and Returns
Lower Correlation to Market Volatility
Easy Portfolio Diversification With Lower Risks
Fine Wine Usually Outperforms Other Traditional Investment Assets
Direct Ownership of Physical Assets

1. Stable Price Appreciation and Returns

Investing in the wine industry offers you a fantastic opportunity to create a stable investment portfolio. That’s because fine wine prices tend to be consistent over time.

For example, since 2004, Champagne bottles had a 534% return while Burgundy wines yielded a 652% return. Meanwhile, the stock market had a return of only 371% during the same period.

2. Lower Correlation to Market Volatility

Great wine bottles usually perform well even during market crashes.

For instance, Liv-ex 1000 (a platform which tracks the best 1000 investment grade wine bottles in the wine industry) has seen a 13.6% annualized return in the past 15 years (since 2006.) The growth was steady even during the 2008 crisis and COVID-19 pandemic.

3. Easy Portfolio Diversification With Lower Risks

An alternative asset like fine wine is great for portfolio diversification. That’s because its value is determined by factors like production volumes, consumer trends, and demand and supply.

The best part is that none of these factors are impacted by the state of the economy. So, this means fine wine allows you to diversify your portfolio easily with lower risks.

4. Fine Wine Usually Outperforms Other Traditional Investment Assets

An alternative asset like fine wine has historically been known for outperforming most investment assets.

For instance, the Knight Frank Luxury Investment Index (which measures various investment grade assets) indicated that five out of nine assets have a negative return on investment post the COVID-19 pandemic in 2020.

However, fine wine investment maintained a 13% annual return in 2020.

5. Direct Ownership of Physical Assets

Fine wine has ‘real value’ in the sense that it's a physical asset that you can own. And once you have a great bottle in your wine cellar, you can choose to sell or indulge in it at a later stage.

Now, let’s check out how you can invest in an alternative investment option like fine wine.

How Do You Easily Invest in Fine Wine?

Here are some reliable ways to invest in fine wine:

Through a Reliable Platform Like Vinovest
Online and In-Person Auctions
Wine Exchanges
Directly Through the Winery (En Primeur)

1. Through a Reliable Platform Like Vinovest

Vinovest is a reputed wine investment company that lets you invest in fine bottles that regularly perform well on the wine market.

It makes it easy for you to buy, store, and sell Grand Cru wine, cult wine bottles, Australian wine, and other great wine bottles from the United Kingdom, North America, and worldwide.

All you need to do is follow these steps:

Sign up on the Vinovest website to begin your journey as a wine investor.
Complete a quick questionnaire so that a Vinovest wine expert will determine your investment style.
Fund your account with a minimum of $1,000.
Sit back, enjoy your favorite alcoholic beverage, and watch your wine investment portfolio grow!

What are some of the benefits?

Vinovest conducts thorough research about fine wine market prices, the reputation of each wine producer, and more. It sources your wines at the best wholesale prices.
It safely stores your wine bottles in a bonded warehouse. The best part is that you are not charged any excise duty or VAT for this.
Vinovest charges a 2.5% annual fee (1.9% for portfolios of over $50,000), and this covers insurance, wine storage, portfolio management, and fraud detection.

Head to the website to know more!

2. Online and In-Person Auctions

Reputable wine auction houses (like Sotheby’s) and other online auction sites make it easy for you to invest in the finest bottles in the secondary fine wine market.

3. Wine Exchanges

You can also invest in wines through wine exchange platforms including Liv-ex (London International Vintners Exchange) and Farr Vintners.

Vinovest also has the Vinovest Exchange - a platform that helps you buy and sell investment-worthy wines with no minimum balance (just like investing in stocks.)

4. Directly Through the Winery (En Primeur)

The En Primeur or ‘wine futures’ method helps you buy wine while it's still in the barrel. It’s a good way to buy some of the world’s finest wines at lower prices.

Allow Vinovest to Ease Off Your Wine Investing Tax Woes!

Fine wine is a fantastic investment asset that any passionate investor should explore. Not only does this alcoholic beverage offer stable returns, but it's also a great way to diversify your portfolio.

However, it's best to get a hold of the best wine expert before starting your wine collection.

That’s where Vinovest comes in! This platform helps you buy, store, and sell cult wine bottles, Grand Cru wine, wine futures, Australian wine, and other investment grade wine bottles from all over the world.