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What are the benefits from investing in fine wine?

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Wealth managers advise that investors should plan to build an investment portfolio that has a ‘diversified returns profile‘, to manage income needs and capital growth aspirations, be tax-efficient, spread risk, and offset challenges in markets over time. So, what can investors plan to gain from wine investment?

Wine investor benefits:

  • Strong, stable growth performance
  • Stability
  • Hedge inflation
  • Tax benefits
  • Tangible – real value
  • Liquidity – the ability to exit efficiently
  • Growing demand for improving assets
  • The ability to diversify your investments

Performance

Fine wine has a proven record of strong, stable growth and demonstrated during the Covid-19 pandemic that this is maintained during periods of significant economic stress.

Liv-ex 100 compared to FTSE 100, S&P500 and gold – 1 year

Graph

 

Source: Liv-ex.com, data at 31.03.2022

In the 12 months to 31st March 2022, key financial market indices and gold compared with Liv-ex fine wine benchmarks demonstrates the benefit of holding investment wines.

As with all investments, trend is a benchmark of average growth, individual wines or company shares may deliver a much stronger, or weaker performance. Sectors can see a surge in demand and rising value, for example currently green energy investments or, in the wine world, Burgundy and Champagne investment wines are seeing significant demand and impressive gains. Liv-ex’s Champagne 100 index grew by 47% in 2021 and the Liv-ex Burgundy 150

As a ‘passion asset’ or luxury collectible, fine wine is generally a top three performer in a collection of assets which includes art, classic cars, watches, jewellery, coloured diamonds, rare whisky, furniture, coins, stamps and luxury handbags. In 2021 fine wine was the top performer as recorded in Knight Frank’s 2022 Wealth Report.

Stability

Fine wine prices are generally not influenced by movements in financial markets, they maintain stable growth, where equities can be very volatile. Stability is highly valuable when portfolio-planning and wine can be used to hedge this volatility.

Inflation-hedge

Rising inflation is a real consideration for savers and investors in 2022 and where cash value has been eroded by levels not seen for 30 years, fine wine has seen its value continue to grow. Investment wines are an important tool for hedging inflation in the current economic environment where inflation is targeted to exceed 8% in 2022.

Tax benefits

The primary tax advantage of fine wine is its classification by HMRC as a ‘Wasting Asset’, i.e. it does not have a predictable life after 50 years, which means that any growth is generally exempt from Capital Gains Tax. Other tax benefits include

  • The Chattels classification for small transactions  which also confers exemption from CGT.
  • In estate planning, it is not exempt from Inheritance Tax Planning but is a useful means of passing on wealth.
  • EIS and SEIS qualifying wine companies can offer tax-efficient opportunities to investors in accordance with those schemes.
  • Investors will mainly acquire fine wine that remains in bonded storage which means that they will remain free from VAT and Duty charges.

Individual advice should always be sought from your tax specialist and our Special Report on Tax and Fine Wine provides a useful summary.

A tangible asset

Fine wine has ‘real value’ in that it is a physical asset, unlike stocks and shares.

Liquidity and flexibility

The trading history of fine wine goes back centuries and the secondary market in investment wines is well established and enjoys transparency, ever-growing routes to market and efficiency. The trade exchange Liv-ex.com has been key to market developments since 2000 facilitating investor information and market functionality to engage fund managers and institutional investors. Investors can generally exit their wine investments at a time to suit them.

Growing demand, finite supply

 The very best wines in the world, which have sufficient demand in the secondary market to support ongoing price growth, are considered investment-grade. These wines are produced in very limited quantities under strict conditions and generally made to improve with age. As the wines mature and enter their drinking windows, demand grows, supply becomes increasingly rare, driving price rises which deliver strong, stable growth over time.

Portfolio diversification

Investment wine offers growth, stability, the ability to shelter capital from rising inflation and recession, tax benefits, ‘real value’ and the ability to exit your investment pretty much when you want.

When you look at investment cycles and the profile of varying assets and the returns they deliver, the benefits of including fine wine in your investment portfolio is obvious and  clearly demonstrated during the Covid-19 pandemic. It is becoming more routinely seen as an important asset for any investor to consider.

For more information, see our Guide to Investing in Fine Wine and speak to a member of our expert team on 0203 384 2262.