News/Events

Investing in fine wines [17th July 08]

There are few investments that are Capital Gains Tax free, Income Tax free and with no upper limit to the amount that can be invested.

I have a passion for wine but it is drinking it.  My excuse is that I think there are few things better in life than hearing the pop of a cork being extracted from a bottle. The problem these days is that many have screw tops and this takes away the fun element but the returns from fine wine investments are still soaring.

A valuation hit my desk this week for a client who invested £8,000 in a Fine Wine portfolio in January 2006.  It is now worth £11,965 – a gain of 50% in just two and a half years!  What a nice surprise especially when most other investments are down in value and still falling.

Investing in Fine Wines is not new and has over the last quarter of a century proved to be one of the most consistent, stable, high yielding and low risk investments in the world.

Supply and demand is critical for any investment as if an investment is in limited supply and the demand is greater than the availability, it’s value increases and of course vice-versa.

In 1855 Napoleon the third effectively started the ‘Fine Wine Index’ when he classified the wines in Bordeaux from 1 to 5.  This classification still governs the actual methods and limits the levels of production, but the weather also plays its part in determining the quality of the grapes and therefore the wine itself.  As conditions change each year, they create a vintage of unique character and this subsequently gives the wine their rarity value.

It is possible to have an individually tailored, personal Fine Wine investment portfolio.  You can invest for growth or an income, and indeed specific ones to cater for school fees, weddings and retirement for example.

Under current UK taxation rules no taxes are paid on gains as long as you are not deemed to be trading.  Table wines, which includes fortified wine and port are considered a ‘wasting asset’ (life expectancy of less than 50 years – lucky if it’s a month in our house as the cellar is raided most nights) and not charged to capital gains tax.  Wine is classed as a chattel for Inheritance Tax and there is no charge to Income Tax as it is a non income bearing investment.

Although our economy is wobbling, demand is growing as new wealth enters the market from emerging economies and of course, rich Russians don’t all just buy football clubs and buy other trappings such as villas and yachts where they entertain with their expensive wines.

It is not always plain sailing as with any investment as prices did fall heavily in 1997/98 when the Far East stock markets took a tumble and there was a glut of fine wine on the market.

As usual, you should get advice from a specialist fine wine company which will have full access to the market with their ear to the ground and better placed to pick up the right case at the right price. The minimum for most schemes is £5,000 in order to achieve a reasonable spread of cases but do speak to your IFA to ensure this asset meets with your overall requirements.

This article was written by Langtons - Published in the Western Morning News, Money, 17th July 2008