Investing in fine wine is nothing new. The ultra-wealthy have profited from auctioning off their vast cellars for years: Alex Ferguson netted £2m from the sale of his portfolio in 2014.
Over the past two decades, the market has seen strong and stable growth, in contrast to more turbulent investments, with some savvy investors seeing impressive returns.
Very simply, the wine market is based on the rule of supply and demand. Each high-end wine producer is limited in the amount they are allowed to produce of a particular vintage. The supply goes down as each vintage is consumed, thereby increasing demand and – inevitably – the price of remaining bottles.
Since wine matures with age, it becomes more sought-after as time passes. Prices of wine can go down as well as up but the naturally dwindling supply of the finest vintages, coupled with an ever-increasing demand, leans favourably towards growth.
The wine market has increased by 127% over the past 10 years and by 6% in 2019 according to the Knight Frank 2020 Luxury Investment Index.
Most wine is classified by HMRC as a ‘wasting asset’, defined with a shelf life of 50 years or less, and therefore escapes Capital Gains Tax in the UK. However, Starling Wines recommends that you should always seek advice from a tax specialist.
Supply & demand
Demand has grown immensely in the past decade as Asia established itself on the fine wine map in spectacular fashion. Hong Kong has become the centre of the global wine trade, with more money raised at auctions there than in London or New York in recent years.
The face of global wealth is changing rapidly with Latin America and Asia expected to lead the way over the next decade, each with an 88% rise in the number of high net worth individuals (HNWIs). In 2011, there were 180,000 HNWIs worldwide with a net worth of ￡30 million or more, and that figure is expected to rise by 50% by the end of 2022.
As the demand for fine wines continues to grow, and supply of produce is capped, the future looks exceptionally bright for investors. If for some reason a wine does not meet its financial expectations, it can still be enjoyed and will not disappear or become worthless as with certain high-risk investments. Starling’s method of wine selection has been developed over years of experience and is constantly evolving in line with industry trends.
This proven track record reduces the likelihood of any wine we choose dramatically reducing in value.
The fine wine market does not require constant monitoring, as with stocks and shares whose value can change hourly and, in some cases, be wiped out entirely overnight. Historically the fine wine market has provided steady high-yield growth.
Maximising wine values
As the fine wine market has developed in recent years, and prices have risen, perfect provenance has become an increasingly critical factor in ensuring wines reach their maximum value at the point of exit.
This is illustrated by the success of recent ex-cellar chateau auctions, where wines across all vintages have achieved 50-100% more than their market value thanks to their proven immaculate origins. Therefore, it is crucial for investors to do all they can from the point of purchase to maximise the eventual sale value of their wines.
Storing fine wine in bond
The easiest way to prove unquestionable provenance is to store fine wine in wooden cases in bond (IB) in a bonded warehouse such as London City Bond or Octavian Vaults. Such bonded warehouses provide the optimum environment for fine wine storage, by carefully regulating temperature, humidity, and other microclimatic factors.
Bonded warehouses have often built up a trusted reputation over centuries in the UK and are also subject to strict rules, the result being an audit trail for every case stored in bond, which provides you with a solid method for tracing provenance. In addition, wines stored IB are not liable for VAT as they are considered ‘in transit’.
A case of IB wine may change hands multiple times without ever leaving the bonded warehouse which removes the risk of damage and disruption. As owner of IB wine you will hold certificates which prove your ownership of the wine as a physical asset- a significant advantage over non-physical assets such as equities which hold no inherent value, other than the paper they are printed on.
Annual storage costs IB are between ￡10-25 pounds to ensure this perfect provenance. Wine storage prices vary greatly depending on the location.
If you have wines in bond already, please contact us to see if we can arrange a better price.
Original Wooden Casing (OWC)
Wines stored in their original wooden casing (OWC) hold most market desirability and garner the best prices. Non-OWC cases sometimes are found in cardboard cases, or in original cases with replacement lids.
Duty paid cases
Wines that have been removed from bond, and thus have had the Excise Duty and VAT paid on them (DP), will generally command a lesser price than those which have never been removed from bond. From a buyer’s perspective, IB cases are far more desirable than DP cases as they can offer immaculate provenance
US strip label stock
Wines that have been imported into the US have an importation sticker placed on them by the relevant importing firm. Wines bearing this sticker have reduced desirability as they have obviously spent a significant period in freight, often without any significant assurances as to the environment in which they have been stored or records of their movements.
With cases of wine that are of a significant age, a certain degree of soiling or damage to labels is to be expected. Wine bottle labels yellow or wrinkle naturally over time whilst being stored at optimum temperature and humidity. Thus, if provenance is impeccable, soiling of this kind in aged bottles should not detract from value.
When purchasing fresh stock, one should ensure that labels and capsules are in mint condition, that wine levels are into the bottle neck (with some exceptions for certain wines in certain vintages), and that bottles come in OWC.
A number of the most desirable wine brands have been taking measures to battle the counterfeit trade that has sprung up as prices for their wines have soared. The Prooftag system has been adopted by some producers, including all the wines of Chateau Lafite-Rothschild (beginning with the 2009 vintage), a technology on all bottles that means that they can be traced and validated upon request.