Fine wine – a liquid asset or a noble rot?

Fine wine – a liquid asset or a noble rot?

Capital is often asked about the merits or otherwise of investing in and laying down fine wine as an investment, and several of our clients are avid collectors. Is wine an asset that can be priced and traded openly, or is it simply an engaging hobby?

I had the good fortune to visit Bordeaux recently, one of the most famous wine regions in the world, with appellations including Entre-Deux-Mers, Pomerol, Margaux and Saint Emilion to name a few.

Like many things, supply and demand dictates the value and pricing of wine. A limited amount of wine is bottled each year and typically good wine improves with age, hence unopened bottles may increase in value over time, especially if supply reduces as that wine supply becomes more limit. Over the years there has been an increase in demand for good vintage wines.

Berry Bros & Rudd have traded in wine for over 310 years, and they suggest investing in only the finest wines from Bordeaux and a few from Burgundy. Naturally, BB&R aren’t regulated to give investment or tax advice and their Investment Policy Guidelines are quite clear.

• No comment can be made about the quality of the wine in ‘that’ bottle
• There is no guarantee about the potential longevity of the wine – the dangers can be to drink it too soon, or perhaps too late
• Adding it to your cellar may add nothing to the value above what it feels like to look at and turn the bottles
• The monetary and appreciation value can’t be predicted with any degree of accuracy
• Prices can fall as well as rise
• The wine markets are unregulated, so buyer beware
• Good vintages that should appreciate in value are scarce, highly collected, and start at a high initial price
• The large players are more informed that the happy amateur

What about taxation? A cellar full of collectible fine wine (no matter where stored) will be valued on probate and added to your estate value for inheritance tax purposes. And if you get lucky and sell at a huge profit then you are exempt from Capital Gains Tax simply because HMRC treats wine as a ‘wasting’ asset where the ‘predictable life’ doesn’t exceed 50 years. However, many fine wines will exceed this time limit, so CGT is not a clear-cut case.

Wine stored in a bonded warehouse (in bond) is not liable to VAT or UK excise duty even when bought and sold in bond if cases don’t leave the warehouse. A wine collection doesn’t produce an income, so avoids income tax.

Not every wine harvest will produce an excellent vintage, but experts can still maximise their chances of success by putting their greatest efforts into the things they can influence.
For winemakers, that means picking grapes when that delivers the desired balance of acidity and sweetness. Winemaking is as much an art as a science. While fermentation comes naturally, the winemaker must still guide the process, using techniques to ensure the wine is as close as possible in style and flavour to what they are seeking to achieve.

Hobby, or asset? Capital’s view is that fine wine is for those who can afford the hobby without it affecting their other plans. If you drop a share certificate it won’t smash and gilts don’t suffer from corkage.

The Gascony wine trade with England has lasted for over 700 years from the time of Edward I in the 1300s and was so important that ships were graded by ‘tonnage’ which is directly related to how many wine ‘tuns’ each ship could carry.

Capital’s office is located in College Hill within the ancient Ward of Vintry, so named because the local wharfs were the main unloading area for the wines of France, along with French garlic to season ‘old’ meat served at the livery halls nearby. Hence the street name Garlick Hill and the local church St. James Garlickhythe (hythe meaning landing place or jetty). The Vintners’ Livery Company hall is still based in Upper Thames Street adjacent to Southwark Bridge.

At Capital, we know the difference between a real asset and an interesting hobby.

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