How to start your whisky investment and make sure returns stay sweet | Whisky Corporation | Fine single malt investment specalists
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28 Dec How to start your whisky investment and make sure returns stay sweet

Some of the rarest whiskies are set to go under the hammer this week at Bonhams’ famed Christmas auction in Edinburgh.

You could snap up an early 20th century Laphroig, expected to fetch up to £6,000, or a 60-year-old Royal Brackla for £3,500 to £4,500.

The sector is offering thirst-quenching returns, with the rarest whiskies gaining 15 per cent in value last year, but there are risks investors need to be aware of to make sure you don’t choke.

Raising a glass: Bonhams is offering rare whiskies at auction  for up to £6,000

Whisky is big business for the UK economy, with 10,000 people working in the Scotch whisky trade in Scotland alone.

The Scotch Whisky Association says the sector accounts for a quarter of UK food and drink exports, at £1.7 billion in the first half of 2015, and caters to 200 markets around the world.

But it’s not just drinkers who are enjoying the benefits of a single malt – collectors are raising a glass to strong profits.

Consultancy Rare Whisky 101 compiles an ‘Icon 100’ index of the most in-demand collectible bottles, which has returned 15.37 per cent in the past 12 months and 7.49 per cent over the past three months.

In comparison, the FTSE All Share has returned 0.6 per cent over 12 months to the end of November.

Raise a glass: The prices of the top 100 bottles are up 15.37 per cent in the 12 months to the end of November

But returns can also go sour if you back the wrong brand, with the worst performing 100 bottle losing 11.48 per cent in the past year.

The worst performing 250 collectible bottles are losing 5.76 per cent, while the worst 1,000 are down 6.94 per cent.

Chokers: The worst performing bottles are losing up to 11 per cent in value

How to invest in whisky

If you are prepared to accept the risks and can afford to lose any money you invest, there are a number of ways to tap into the whisky market – from buying up bottles and investing in specialist funds to purchasing a share of the liquid in a cask. Here’s a closer look at some of the options.

Auctions 

The Bonhams auction house is offering two rare whisky bottles during its Christmas auction on Wednesday December 9. There is a Laphroaig Old Liquer, bottled in the early 20th century, that is expected to fetch between £6,000 and £7,000.

THE COST OF WHISKY INVESTING

The set up costs for being a whisky investor can be low depending on how many bottles you want to buy and their price.

There are no other costs unless you want to pay a company for storage of a large collection and to insure it.

Whisky only needs to be stored at a constant level at room temperature and kept upright avoiding contact between the cork and the spirit inside.

There may be capital gains tax to pay when you sell up.

If you buy into a fund there would only be capital gains tax to pay if you hold it outisde an Isa.

The tax treatment is complicated for those holding the bottles or actively trading them.

It is based on HMRC rules regarding ‘chattels’ or personal possession.

If you are not actively buying and trading then it could be treated as a ‘wasting asset’ and not be liable for capital gains tax.

But there are also rules that CGT is due when the proceeds of a single chattel is more than £6,000.

It is worth checking with an accountant or tax expert before buying or selling.

Alternatively, you could get your hands on a 60-year-old Royal Brackla. This bottle was part of a collection of 62 bottles made from a cask in 1924 that lay undisturbed until 1984.

The distillery was closed in 1985 but reopened in 1991 by United Distillers, with 62 bottles given to local dignitaries.

Very few of the bottles have ever been sold on the open market and this one is expected to get £3,500 to £4,500.

The very rarest tipples can go for an absolute fortune. Last year, a Macallan M Imperiale 6-litre Lalique decanter sold for £381,620 at a Hong Kong auction.

Whisky brokers 

You could also buy direct from a broker or whisky collector, such as Aceo or RareWhisky101, but be prepared to dig deep into your wallet.

Last year, a collection of 100 bottles of a 50-year-old Glenlivet went on sale for £18,000 each.

There is no regulation or accreditation scheme for whisky brokers but it is worth getting recommendations from trade body the Scotch Whisky Association.

Do your research to make sure you are happy with the people you are dealing with.

Platforms 

Rather than buy a bottle or cask, you can buy whisky as it matures. For example, WhiskyInvestDirect deals in litres of pure alcohol units and charges 1.75 per cent commission on trades.

Investors choose a distiller on the platform and their investment matures in the cask, for a minimum of three years. It is then bought back by one of the big whisky brands to be sold on the open market.

The investor gets any returns from the price paid and any profits made.

The minimum storage fee is £3 a month. WhiskyInvestDirect offers barrels from nine distilleries – Ardmore, Auchroisk, Benrinnes, Blair Athol, Cameronbridge, Dailuaine, Glen Spey, Inchgower and North British.

Funds and shares 

You could also buy into whisky investment funds.

There are no UK funds doing this so you would have to look to an offshore investment, such as the Hong Kong-based Platinum Whisky Investment fund. You would need a lot of wealth to buy-in as the minimum subscription is $250,000.

This would not be protected by the FSCS, but you could also put money into a fund investing more generally in drinks businesses to spread your risk. You could also buy shares in big drinks producers.

Glenlivet release a hundred bottles of 50yr old whisky at £18,000

Know the risks 

As tasty as the returns sound, there are some risks, as previously mentioned.

You need to find a pretty rare whisky if you want to make money – and these aren’t typically available in your local off-licence.

There is no Financial Services Compensation Scheme protection for whisky investment, and, somewhat ironically, it is a illiquid asset that can be hard to sell if there are no buyers.

There can also be unforeseen problems, including export duty and forgeries.

And ultimately, you can never drink from your collection if you want to make money from it.

Tipple: Only the rarest bottles, such as this Laphroaig, tend to make money

Lee Goggin, co-founder of findawealthmanager.com, who works with high-net worth clients, said: ‘Whisky is becoming more prominent, partly as a result of affluent individuals feeling that the French are getting greedy with ‘en primeur’ prices for the finest wines. But whisky investment is risky and can throw up a number of unforeseen problems.

‘When I worked as a banker I had a client in the US who bought a case of wonderful rare Macallan single malt whiskey for between £250 and £300 a bottle. It had been aged in the best Spanish sherry oak barrels but there were serious complications when we tried to get it to the States for him.

‘There were various export restrictions in place and, to make matters worse, it was completely impossible to get it insured. When colleagues went over on business they would take two bottles at a time. Any bottles sent overseas are likely to be subject to excise duty locally, which can be a nightmare’.

He warns that another problem of investing in rare aged single malt whisky is that when distilleries realised there was a growing demand, some of them bottled whatever they could find lying around in old casks and it was priced on account of its rarity value rather than its quality.

‘You could conceivably pay hundreds of pounds for a bottle, open it for a special occasion only to find it is mediocre at best.’

He warns the market is dependent on global factors, adding: ‘What happens in China has a significant effect on the demand for aged whisky as the Chinese favour Scotch that is at least 12 years old.

‘The clampdown on corruption in China hit sales of aged single malt whisky and economic turbulence is also likely to have an impact in the coming years but prices still appear to be rising.

‘And if they do fall, you can drown your sorrows in style.’

Royalty: The 60-year-old Royal Brackla is expected to fetch up to £4,500.

These risks haven’t deterred Rickesh Kishnani, chief executive of Platinum Wines, which last year launched the $10 million Platinum Whisky Investment Fund.

He said whisky investment fundamentals are based on the simple principles of supply and demand.

He explains: ‘In the 1980s and 1990s, distilleries did not put enough single malt whisky into barrels for long-term ageing to meet current global demand.

‘This imbalance of supply and demand has led to the steady increase in the prices of older and rare bottles.

‘Since 2007, most large distilleries in Scotland have begun increasing production, but the reality is their first barrels of 18-year-old single malt whisky won’t be ready until 2025; the 25 and 30-year old whisky won’t be ready until the 2030s.’

He warns that not all rare whisky goes up in value and to avoid forgeries it is best to look for iconic distilleries such as Glenlivet, and Ardbeg, or those that have closed and therefore have very limited supply on the secondary market, such as Port Ellen, Rosebank and Brora.



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