Over the past 20 years investors have lost in excess of £250 million to drinks investment and associated scams. Here are ten gold rules to help you avoid giving your valuable savings to a fraudster.
1) Cold calls and high pressure sales
Never buy from a wine investment company that cold calls you. Wine, along with other alternative investments such as carbon credits, coloured diamonds, graphene, rare metals, art, land etc. is not regulated by the Financial Conduct Authority. This means you cannot claim compensation from a UK regulatory authority if things go wrong.
If wine were regulated, investment companies would not be allowed to cold call. In the vast majority of cases where investors have been defrauded by wine and other commodity frauds, it has started with a cold call. Thousands of investors would now be facing a far more comfortable retirement if they had said no to a cold caller. Some have been scammed out of hundreds and thousands of pounds. It really is the Wild West out there!
Never accept a cold call about an investment. Even better don’t accept cold calls – period! Reputable companies will not use high-pressure telesales tactics. However, scam investment companies invariably use high-pressure sales tactics. Never let yourself be pestered or bullied into a wine investment.
2) Know what you are doing
Only invest if you really know what you are doing or you know someone you can trust with experience in dealing in fine wine. In any case, wine should only be a small part of your investment/savings portfolio. Consider it a medium- to long-term investment.
There are examples of quick profits being made but unusually you need to be on the inside track to benefit.
3) Due diligence
If you do decide to invest, do your homework – your due diligence. The internet makes it easy to check these days – easy to check on prices of wines and easy to check out UK companies and their directors
4) Check company details
For UK companies, use the Companies House website where their webcheck service gives basic and free information on when the company was founded, where the registered office is, who the directors are. Download the free current appointments file. Is the company up to date with filing its annual return and its accounts? UK Companies are required by law to file their annual returns and accounts on time.
There are now very good sites like duedil that are an excellent source of information about companies, their directors etc, plus some financial details. The free version of duedil is likely to provide you with all the information you will need. Company Check and Companies in the UK are also useful sites.
Does the company have a track record? How long has it been trading? This is particularly important when buying en primeur, especially Bordeaux, as you will be handing over your money two years before you get your wine.
Is the fancy London address – Mayfair or somewhere in the City – real or is it an accommodation/virtual office address? Google the address. Are there lots of other companies at the same address? Is this the address of a company that offers virtual office services, mailboxes and meeting rooms?
Look at the company’s website – does it give you hard information: who the directors are etc.? Or is it just guff and blather? If it is the latter leave well alone as it is likely to be a scam wine investment company.
Does the website claim years of experience even though the company was set up recently? If so – avoid!
5) Check prices plus some sources of free information
The excellent Wine-Searcher has brought greatly increased price transparency. If you are at all serious about wine investment buy the pro-version, which costs only $US43 a year. This gives you prices around the world of an enormous number of wines and certainly all the ones with investment potential. Then you can check prices over the last four years plus a wider range of retailers.
Liv-ex is another very useful source information about the fine wine market. The Liv-ex indices and the Liv-ex blog are particularly useful.
Wine Asset Managers (a wine investment fund) also has some useful free information see their blog and their monthly reports.
6) Wine is liquid but not a liquid asset
Unlike stocks and shares or bank deposits, you may not be able to sell your wine if you need cash quickly. It can take time to sell you wine and you will have to pay a commission on the sale. Be wary of companies that charge an upfront commission when you buy, offering commission-free sales when you want to realize your assets. Often these companies are not still around when you want to sell, so you end up paying commission twice. If they are still around they have no incentive to sell your wine.
7) Medium to long-term investment
You should think of wine as a medium- to long-term investment. It should also only form a small part of any investment portfolio. Although the contents are liquid, wine is less liquid than shares, for example, which can be sold very quickly. It may take a while to sell your wine.
8) Provenance is all-important
Fakes/counterfeits have been in the news recently. Don’t buy wine that is over 15 years old unless you really know what you are doing, as the risk of fake/counterfeit wines is greater with older wines.
Make sure that your cases of wine are in their original wooden case (OWC) and are a complete set. Unscrupulous brokers may try to palm you off with an assembled case of wines made up of bottles from various sources.
9) Wine investment is not tax-free!
This is quite complicated and you may well need specialist tax advice.
All too many wine investment companies claim that a big advantage of wine investment is that it is free of tax. They base this claim on HMRC (Her Majesty’s Revenue & Customs) considering wine to be a ‘wasting asset’. It is not that simple. A ‘wasting asset’ has a life of less than 50 years. Although many wines are unlikely to be drinkable after 50 years, this is not the case for many investment grade wines, especially from good to great vintages.
HMRC: ‘However, where the facts justify it, we would normally contend that wine is not a wasting asset if it appears to be fine wine which not unusually is kept (or some samples of which are kept) for substantial periods sometimes well in excess of 50 years.’
The 50-year period starts from the time that you buy the asset. This means that a First Growth Bordeaux from a good vintage bought en primeur can be expected to be still drinkable after 50 years. Whereas a 40-year-old wine from the same château might well not have a life expectancy of another 50 years, so would be classed as a wasting asset.
So, for example, a case of 2009 Lafite bought en primeur in in June 2010 is unlikely to be classified as a ‘wasting asset’. However a case of 1969 Lafite also bought in June 2010 may well be considered a ‘wasting asset’, as there is a good chance that it will not be drinkable 50 years hence ie June 2060.
Although in theory profit made on wine is calculated per bottle, wine sold by the case is likely to be considered as a ‘set’ so any CGT tax (Capital Gains Tax) liability will be calculated on the price of the case and not per bottle.
See HMRC on capital gains tax on wine. Inheritance tax is also payable on wine. The position is much simpler than capital gains tax. The wasting asset rule does not apply and the amount due is calculated on current value and not on its value when the wine was bought.
Income tax: if you buy and sell wine regularly this may count as income and you will be taxed accordingly.
10) Storage
Store wine in your own account at a bonded warehouse. Wines bought for investment need to be stored in a bonded warehouse where they are exempt from duty and VAT. If you take the wine out of bond, you will have to pay duty and VAT. Duty will be payable at the prevailing rate when removed from bond and VAT again at the prevailing rate, based on the price you paid for the wine.
Don’t forget that you will have to pay annual storage charges on your in-bond wine. The charges are not huge – for instance London City Bond’s annual storage charges start from £11.16 + VAT per case – but they will reduce any profit you make on your investment.
It is often said glibly – usually by journalists as a punch line to an article – that if it all goes wrong you can always drink your wine. Although true, you may have to pay a large bill – duty and VAT – to get access to your wine and you will be drinking your savings.
A last thought
If you have elderly parents, try to check that they aren’t being pestered by cold calling sharks or even worse have succumbed and have invested in dubious wine investment or other alternative asset companies. Once they have fallen for an investment scam they will probably be on a suckers’ list that gets passed around and they will get cold calls from a succession of scam companies.