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Pensions - Wine Investment

PENSIONS - Investment and other Considerations

The Chancellor has signalled changes to the rates and levels of tax relief for pension contributions. This will undoubtedly affect higher rate taxpayers.

The loss of relief on contributions coupled with tax to pay on income in the future is quite a change and brings into question the level of funding higher rate taxpayers might make into pension arrangements.

Many people in this position will be considering alternative investment options; however, there are very few that can provide tax efficiency together with good investment returns.

Now here’s a different approach to retirement funding…………...

In an era of low interest rates, volatile markets and other relatively high entry cost investments one option for an “alternative investment” is that of investment grade wine.

An example of a client who has opted for spreading his investment portfolio to include fine wine is Fred H. (names changed to protect the guilty).

Fred articulated his objectives as “seeking capital growth for the future” in a “tax efficient” and “flexible” manner. “I’ve used all the normal and traditional avenues and with tax relief disappearing for pension contributions, I’m keen to find alternatives that offer more control and flexibility with access”.

The option of investing in fine wine offers the benefits below and more; however, it does share similar criteria with other investment forms in that returns are not immediate and one should be prepared for a 5 - 10 year investment period. The longer the better to maximise the potential gains.

The key advantages of investing in fine wine arise from its flexibility - both in terms of initial investment and importantly when taking cash benefits from the returns.

Headline advantages:

  • fine wine currently has no charge to tax on the investment gains. This has the effect for a higher rate taxpayer of needing only a return of 4.8% to equate to 8% gross. With targeted returns of 10 - 12%, this equates to a return equivalent of 16 - 20% to a someone at the 40% tax rate.
  • contributions can be flexible and made when it suits Fred
  • there is no set term of investment
  • the fine wines can be sold by the case or multiple cases to receive the appropriate level of money needed
  • in terms of expectations, returns of 5 - 12% net given a 5 – 7 year period.

All very good ……………...BUT what can Fred expect to generate in terms of returns? These will vary - as with any other investment, we are unable to predict what wines will generate the highest returns and what those will be. This is where our expertise and knowledge come to the fore.

A final thought……………………..this is a physical asset and if all else fails, you have the wine to drink!!!!