Investing in Wine
Investing in wine comes with many vagaries. Not only must one predict market shifts and deal with an inherent lack of data, there is also the sheer unpredictability of agriculture to contend with.
That said, wine has consistently proven itself as one of, if not the best alternative asset available for capital appreciation.
First off, the entry point is very low: it is possible to get started with just a few hundred pounds. When put in the context of stalwarts like classic cars, fine art or diamonds, it’s easy to see why the category is so rapidly expanding.
Wine, unlike the aforementioned, also has two very unique key features. As a consumable, it will naturally become rarer over time – after all, someone has got to be drinking it… – as well as becoming better: all fine wines need at least a few years after release to enter what is called their “drinking window” and start to taste good, a characteristic which increases with age – up to a point though.
Most investment grade fine wines will have an enormous shelf life, sometimes up to 50 years, but due to the fact that there is a remote chance they can get spoiled, they are still classed as a wasting asset by HMRC: here comes the good news, as this means all profits are capital gains tax free. To add to this, all wine can be purchased ‘in bond’: it is stored in temperature-controlled bonded warehouses, exempt from tax and duty. Please note that a bonded warehouse is a secure space where wines liable to import duty and or Value Added Tax (VAT) are stored without payment of duty and or VAT. Duty and VAT payments are deferred until the wines are sold or removed from the bonded warehouse, either for release or to be transferred to a non-bonded warehouse.
This process allows the savvy buyer to avoid paying any tax on their investment at all, and, with the right advice, it is possible to buy wine, which will appreciate 8-12% per year – way better than a high-street bank.
So what’s the catch? Well, first of all you need to know what to buy. Only a tiny amount of wine is investment grade, so it is always best to seek professional advice. Wine, as a very physical asset, also carries certain considerations: storage, for one, will usually cost £12 per case per year, eating into that margin, and your wine will also need to be sold at some point to realise the profits. This is a service that most brokers will charge 10% for. There are also the inevitable concerns surrounding fakes: wine producers are getting better at anticipating these, but it is imperative to trust the source you’re purchasing from.
That said, wine investment is still an alternative asset to be taken seriously. Liv-Ex, the London International Vintners Exchange, which maps all the trades of its 400 or so merchant members in order to report market values, has reported serious double-digit growth most years. Burgundy in particular has exhibited the strongest returns in recent years, with an over 200% increase over the last 10 years across its most traded wines.
Like any alternative asset, wine is a great thing to have as part of your portfolio. It runs somewhat contra to the wider capital markets, so can be very defensive when they crash and, although perhaps less important from a purely financial perspective, can be really fun!
Although it’s a great way to invest some money and learn more about wine, we do not specialise in investment at The Beauty & The Taste, but we can help point you in the right direction if it’s something of interest.