With traditional investment options not yealding the returns they once did, wine has been growing in popularity. But which wines? And how do you choose?
Wine, like anything else can fall in value. However, historically speaking wine bought in bond has returned healthy profits for investors with returns of 30% or more for the best bottles. In addition, for UK investors, these profits are not subject to capital gains tax as it falls under the Inland Revenue’s Waste Asset Rule. In other words as the wine in question will ultimately deteriorate it cannot be held to be an asset that will go up in value. Unfortunately for US investors the IRS takes a different approach and wine falls under the category of a ‘collectable’ like works of art, antiques or precious metals which means it is still liable for capital gains.
How to invest in wine
Growers do not sell to individuals directly so you must go through a merchant. It is imperative, here, that you chose a well-known reputable dealership as the wine trade is unregulated making it open for unscrupulous traders to pass off inferior bottles as top stuff. Top dealers do not charge a consultation fee but will take a 10% commission when you come to sell so factor this in to your calculations.
Unless you’re dying for a taste, keep the wine stored ‘in bond’ in a warehouse. If you release them to drink you will have to pay import duty and VAT, which doesn’t make much sense if you are keeping them only as an investment.
In general, top wines make the most gains as there is high demand from emerging markets such as China and South East Asia for rare, luxury vintages. As such, an investor should spend their money on fewer, high-quality bottles than lots of less-expensive, inferior vintage wine.
Bordeaux is the region that wine experts recommend where new buyers should invest first as it is the best known and therefore the safest investment.
Wines are sold in three stages: En primeur; when they first arrival into the country, then two years later, and finally, when they maturity. En primeur, for obvious reasons is the most risky because the wine has not yet matured and it is not known what it tastes like and therefore what the popularity will be. However, this is when the wine is at its cheapest and if the gamble pays off you stand to make the most profits.
Once the wine has matured it will theoretically go up in value as people drink the bottles making your stock rarer and therefore more valuable. When to sell after that is up to you.