Wine investment can work


Wine investment can work

My previous post highlighted the many scams associated with wine investment. However, wine investment can work provided certain conditions are met. Please note that my comments concerning the tax position relate to the UK only.  

It is crucial to buy the right wine from the right vintage at the right time and price from a legitimate wine company. Only a small number of wines are likely to accrue sufficiently in value to make them investment potential wines. Like any investment you need to avoid buying when prices are at a peak and instead buy when they are low.

Buying the right vintage is crucial. A case in good condition of 1982 Mouton-Rothschild – a stellar vintage – will now set you back at least £11,500 in bond. In contrast a case of 1980 Mouton – an indifferent vintage – will only cost from £3600.

As my previous article showed there are too many scam wine investment companies. Fortunately there are also plenty of legitimate companies who should provide you with good advice. My investdrinks site (http://investdrinks-blog.blogspot.com/) lists a number of UK companies from whom I would consider buying wine. Also the internet now makes it much easier to do your due diligence including looking at a company’s history and financial health through the UK’s Companies House Beta Service (https://beta.companieshouse.gov.uk/)

What to buy

Bordeaux is the region for anyone starting out in wine investment because Bordeaux is largest producer of fine wine and there is a well-established price history dating back over decades. I suggest any investment portfolio should include Bordeaux. Then you can consider some top wines from including Burgundy, the northern Rhône, Ribera de Duero (Spain), Barolo and Barbaresco (Italy), Grange and Hill of Grace from Australia.

Price transparency

The internet has brought much greater price transparency making it easy to check on prices from retailers around the world through variety of sources – wine-searcher, liv-ex and Wine-Owners. It is also now possible to check on a wine’s price history.

Provenance –beware fakes
Maureen Downey (Wine-Fraud) and Don Cornwell (Wine Berserkers) among others have exposed the worrying number of fake fine wines circulating. It is best to make sure you buy stock that either comes direct from the property or which has clear provenance. But it remains that stock that has come direct from the property is the best option, which may well attract a premium.

Avoid buying older vintages especially trophy wines such old vintages of Pétrus or Cheval Blanc etc. the probability that these could be fake is unacceptably high for an investor.

Bonded warehouses

Wine for investment should be stored in a Government approved bonded warehouse as this means that the wine is not liable for duty or vat while it remains in bond. Investment wine is normally sold in bond, so continuing to avoid duty and vat. Bear in mind that bonded warehouses will charge annual storage charges, so these will need to be borne in mind when calculating your likely gain from any wine investment.

It is also important to ensure that your bonded warehouse is properly set up for the storage of fine wine. Storage in premises that are not properly temperature controlled is very likely to result in the investors receiving a reduced price for their wine.

Investors should set up their own account at a bonded warehouse. This will give them full control over their wine, which you won’t have if you are in a client account held by a wine merchant.

Tax

It is often claimed that wine is free of Capital Gains Tax (CGT) because it is classed as a ‘wasting asset’ by Her Majesty’s Custom & Excise (HMRC). This is partially correct but an asset is only a ‘wasting asset’ if it has a useful life of less than 50 years. Although this applies to a large majority of wine, it is clear that certain wines, especially those that merit being used as an investment, are very likely to be drinkable even after 50 years.

For instance a case of 1961 Latour bought en primeur in 1962 would be subject to CGT because it was bought 55 years ago and should still be very enjoyable to drink. Given the number of tasting notes still being written on 1961 Bordeaux it would be an uphill task to convince the tax authorities that this 1961 is now undrinkable, especially as it would have presumably sold at a considerable profit.

In a further complication the ‘50-year wasting asset’ period starts from the time of purchase. So if the case of Latour 1961 is bought in 2017 it may well be possible to argue that it is a ‘wasting asset’ as it may not be drinkable in 2067 – 50 years from now.

HMRC’s position is set out here: https://www.gov.uk/hmrc-internal-manuals/capital-gains-manual/cg76901

Wine is subject to inheritance tax. The notion of a ‘wasting’ asset does not apply and the tax due is calculated on the current value not on its value when it was bought.

Wine funds

As an alternative to buying and storing your own cases of wine, wine funds are worth considering. They operate like a unit trust managing a portfolio of wines. People managing UK wine funds have to be approved by the Financial Conduct Authority (FCA), so this provides more protection for the investor as buying cases of wine as an investment from merchants is not regulated by the FCA.

 Investment balance

No more than a small percentage of your investment/savings portfolio should be in wine. Although wine is liquid is a not necessarily a very liquid asset as it can take a while to sell. Also remember that the price of wine is affected by economic trends. Prices go down as well as up.

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