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Uncorking your fine wine investment

Investments in fine wine are on the rise, but most people are unaware of the hidden costs of taking your wine out of bond- is Gibraltar the answer?

The volatile nature of the stock market and new restrictions and taxes on property are forcing investors to diversify their portfolios in order to improve returns. As a result, many are turning to fine wine and vintage champagne to protect against market headwinds and to capitalise on the rising demand for, and soaring value of, top wine.

At present, it is not unusual for the price of a fine wine portfolio to increase in value by around 20% year-on-year. Over a five-year period, returns can be upwards of 160%. A case of Petit Mouton 2011, for example, would have cost £690 in May 2012 but by May 2017 it had risen to £1,831 according to Liv-Ex. That’s a 165% increase.

The good news for investors is that the value of fine wine will continue to rise as availability falls; top wines become increasingly unattainable as wine matures into its perfect drinking age and bottles are consumed by aficionados and their family and friends. It’s the age-old situation of supply (limited) and demand (increasing).

With any investment there are hidden costs, and fine wine and vintage champagne are no different. Investors need to be aware of these prior to purchasing bottles and cases as they can significantly reduce ROI. Of course, there are ways of mitigating these costs and investors should familiarise themselves with these, too.

The expenses attached to your fine wine investment will depend on where your wine is stored. In the UK, for example, it can be subject to capital gains tax (CGT) and inheritance tax (IT). In most instances, and to mitigate CGT, wine is held in a personal name in bonded storage facilities to mitigate CGT.

Under this structure, wine is classified as a “wasting asset” and means it can be traded without profits being subject to CGT. However, by holding wine collections under a personal name it is subject to inheritance tax at 40% regardless of whether you are a resident or not.

Interestingly, around 45% of wine stored in bond in the UK is by non-residents, meaning that £2 billion + worth of wine held in UK facilities could be subject to IT. Worryingly, the majority of investors are unaware of this.

The expenses attached to your fine wine investment will depend on where your wine is stored.

There is clearly a substantial saving, and a significant improvement on an investor’s return if they decide to take their wine out of bond at any stage in Gibraltar. Fine wine and vintage champagne offer investors a way to diversify their portfolios and potentially deliver significant returns, and by understanding the hidden costs and storing wine in the best location, they can uncork even more value.