What is Whisky Investment?
Whisky investment is the purchasing of rare whisky, either in bottles or casks, for the purpose of selling it on at a later date for a financial profit.
Why Buy Whisky?
Until recently, cask whisky was difficult to purchase. So, unlike equities and bonds, it’s not a ‘crowded trade’. Buying tangible assets gives you more financial security as products can’t go bust like organisations can. It makes buying a cask of whisky a much more attractive option.
What is a Cask?
A cask is the wood that whisky is stored in while it matures and it plays a critical role in developing flavours. Casks can come in all different sizes and wood types, but the most common type used for whisky is a 200l ex-bourbon barrel that was originally used to mature American Bourbon. However, whisky is regularly matured in other types of casks including sherry, wine and tequila, all of which bring their own flavours to the spirit.
How is Scotch Whisky Made?
Scotch whisky must be fermented and distilled in Scotland, using malted barley, Scottish water and yeast to create a New Make Spirit that is then matured in oak casks for a minimum of three years. The casks must be stored in Scotland throughout the maturation process. The only additive permitted is caramel.
After cask maturation, it becomes Scotch Whisky. The Scotch Whisky Regulations of 2009 mean that the quality restrictions surrounding Scotch Whisky production are strict. This ensures you’re purchasing the highest quality, luxury product. It also carefully preserves the unique flavour produced in Scotch, which is unmatched worldwide.
What is First Fill and Refill?
Casks can be described as ‘first fill’ or ‘refill’. A cask that is being used to mature Scotch for the first time is referred to as ‘first fill’. It becomes a ‘refill’ cask when used for a second or subsequent time.
Why Purchase Casks Over Bottles?
Whisky is unlike many stored goods – it develops and increases in value as it ages in the cask. Purchasing casks instead of bottles is a specialist approach. But, it’s much more profitable in the long term. Unlike wine, whisky doesn’t mature in the bottle. Once Scotch Whisky is bottled, there’ll be no change in its flavour. The age statement on the bottle refers to the amount of time it has spent maturing in the cask. Its ‘age’ doesn’t change even if the bottle is kept for decades. A 10-year-old whisky will always be a 10-year-old whisky once bottled.
Generally, the longer that you leave the whisky in the cask, the higher quality it’ll be. So, older whiskies command higher prices. Purchasing casks means you’re receiving a product that will improve and develop over time. Also, tax on whisky in the bottle is much higher per LPA, (which stands for Litre of Pure Alcohol – the measure used by the whisky industry to account for the alcoholic content of a spirit), than on spirit in the cask. There’s no duty charged on the whisky as it’s maturing in a bonded warehouse either, which makes it very tax efficient.
How do I Buy my Cask?
You can buy your cask through our secure online portal. You will be able to see what cask you are purchasing and what terms you have.
What is a WOWGR Certificate and What Does It do?
The Warehousekeepers and Owners of Warehoused Goods Regulations (WOWGR) certificate is required for businesses to move goods without payment of duty from one bonded warehouse to another. The importance of having a WOWGR license is that if a product is purchased via a WOWGR company, no duty will be paid until it is removed from their warehouse. They act as a custodian of your cask and would be responsible for any duty that is not paid.
Is There a Minimum Investment Period?
When you purchase a cask from Whisky Investment Partners, you are taking ownership of it, so it is yours to do as you please. However, we strongly suggest any whisky investment should be looked at as a minimum hold time of five years and the longer you leave it, the greater the potential for a large return.
What is Included in a Cask Purchase?
Our cask sales are tailored to each client, so we offer both aged and new make casks. We look to include storage and insurance on purchases; however this does depend on which you choose so please make sure you read the description.
Is my Cask Insured?
Yes, your casks are fully insured from the start of your ownership. Our premiums are adjusted annually to allow for the rise in value of each cask, ensuring each and every cask has the appropriate level of cover. The insurance covers damage (including accidental damage), full loss and theft and we give you insurance prepaid for a term.
Do I Get a Certificate When I Own a Cask?
When you have purchased your cask you will receive a certificate of ownership along with your unique cask number and information about where the cask is stored, along with the technical information about your cask.
How Do I Know I Actually Own a Cask?
Once you have bought a cask from us, you are entering into a sales and purchase agreement, just like any online purchase, like buying something from Amazon and at this point you will receive a receipt confirming your purchase and all of the information about cask storage and insurance. You will be given a certificate of ownership which will include your unique cask number that relates to the exact distillery where the cask is stored, along with the technical information about your cask. This will include the wood type, the distillery of origin, the spirit name inside the cask and an ABV (alcohol by volume) as a minimum.
Can I Visit my Cask?
Yes, you can arrange to visit the bonded warehouse where your cask is stored. However, we have to appreciate that bonded warehouses are working facilities. They have strict health and safety policies in place to prevent accidents or injury. As such, they can’t accommodate drop in visitors. Whisky Investment Partners will arrange group viewing days that can also be tied in with a tour of the distillery.
How do I Know my Cask is Actually There?
As per our sales and purchase agreement, you will be issued a certificate which will reference your unique cask number. Your ownership will be registered with a HMRC WOWGR approved company and the cask number you have will be registered against your name.
Can I go and Get my Cask Whenever I Like?
You can remove your cask from the bonded warehouse whenever you like. However, it’s important to remember that you will be liable for any customs and excise duty and VAT due from that point onwards.
Do I Take Delivery of my Cask?
Investing in whisky casks doesn’t mean that you need to find room to securely store your cask. Indeed, part of the process is that casks must be stored in duty suspended bonded warehouses. These are large storage warehouses that have the added benefit that while they are stored there, you won’t pay excise and duty on them; this charge comes when you wish to bottle the cask. This means that if you aren’t looking to bottle your whisky (which is common as most cask investors look to sell them on for a profit to other investors) you won’t need to pay the excise and duty at all.
Do I Need a Delivery Order When I Purchase a Cask?
Simply put, no, in the vast majority of cases, you do not need a delivery order when you purchase a cask with Whisky Investment Partners. If you were to buy a cask direct from a bonded warehouse, you might receive a delivery order setting out the details of the cask. However, this is very rare today and the vast majority of warehouses do not allow accounts for private individuals, preferring to only deal with WOWGR-approved companies.
Whisky Investment Partners received a WOWGR license in March 2020, fully authorising us to buy, sell, move and store duty suspended alcohol. Without this, you would experience difficulties when trying to move your cask to another warehouse or if your warehouse goes out of business. When you invest with us, this isn’t a worry.
If a cask is moved from a bonded warehouse and isn’t transferred to another bonded warehouse duty is then due. Whisky Investment Partners also pay for storage and insurance for a number of years on every cask which again gives you peace of mind because you are covered against every eventuality allowing you to sit back and watch your investment grow in value.
What is The Angel’s Share?
This refers to the amount of whisky lost during the ageing process. In order for whisky to properly age, it has to breathe. Anytime you store a liquid in a non-airtight container, you will lose some to evaporation.
However, The Angel’s Share actually plays something of a necessary role in whisky maturation. This process of evaporation is how distilleries eliminate some of the unwanted ingredients of their whiskies. While some “fresh” brews may be clocking in at a very high alcohol content, this is guaranteed to taste awful. Distilleries rely on this evaporation process to eliminate some of the alcohol and allow the other ingredients to take a more prominent role within the whisky.
Will I Have to Pay Capital Gains Tax?
The good news is that whisky casks are classed as a wasting asset. As such, they’re not subject to Capital Gains Tax (CGT). Even though it may be good news that your whisky cask won’t be subject to capital gains when you come to sell it, you may be wondering why your cask is classed as a wasting asset?
Casks are made from wood, which is porous. Some whisky is absorbed by the wood and some is lost to evaporation. An average of 2% of the whisky in a cask is lost each year, which is known as The Angels’ Share. Because of alcohol lost to the Angels’ Share, HMRC classifies whisky spirit in casks as wasting goods, therefore the CGT exemption applies.
What is the Difference Between a Stockist and a Bonded Warehouse?
Distilleries often don’t offer casks directly to the public, so these opportunities are rare and even if they do, such sales usually have restrictions on the uses. For example, they might only allow you to bottle the cask for personal use, or they will sell you the liquid and not the actual cask. You wouldn’t be allowed to sell it on the open market. For this reason, purchases from a distillery direct are more suited for individuals who want a passion project, so when buying through us you have a lot more flexibility.
What is a Bonded Warehouse?
A bonded warehouse is a tax-free storage location. Duty and tax payable on goods held there are deferred until the goods are purchased and shipped out. Because of the high potential tax taken from alcohol, bonded warehouses are licenced and closely monitored by HMRC.
How Does a Bonded Warehouse Work?
In order to own / control a bonded warehouse the company must have the correct certification, which is called the Warehousekeepers and Owners of Warehoused Goods Regulations (WOWGR) which is governed by the HMRC in the United Kingdom. You can check to see if a warehouse has been verified by HMRC here: https://customs.hmrc.gov.uk/sdvlookup/index.
This industry regulation gives you as the owner peace of mind that the cask you own is being looked after securely, and that the cask number you have is registered with the bonded warehouse. These are regularly inspected by HMRC so you can have confidence that if your cask number isn’t there on inspection, action will be taken. At Whisky Investment Partners, you can rest assured that as well as our partner distilleries being fully regulated, we also have full WOWGR certification.
What Are The Risks?
We see very limited downsides to investing in casks of whisky. The only real risk is that whisky falls out of fashion and there is suddenly no real demand for whisky.
Although past performance is no guarantee of future performance, we simply can’t see this happening. With more and more developing nations rising through the ranks, we feel that there’ll be an even greater demand than we’re seeing today. Whisky exports have seen year-on-year growth every year for over 30 years now.
What if You go Bust?
In the unlikely event that we, the distillery or bonded warehouse ever went bust. Your asset would simply be moved to another bonded warehouse. It’s your cask, you own it. It would not be party to the liquidator’s claims.
How do I Sell my Cask?
You have the freedom to explore your own options as a client but when it comes to selling your cask, there are multiple exit options that Whisky Investment Partners can assist with.
You can sell at auction and with whisky casks becoming increasingly popular, they are one of the rising stars at leading auction houses around the world. Casks have a solid history of beating auction estimates and yielding windfall profits to sellers.
You can sell to independent bottlers who purchase casks to bottle and label under their own brands or buy New Make Spirit casks to mature in their own warehouses.
Blenders also purchase casks and there is huge demand from them for New Make Spirit that they will use to create blended whiskies.
Whisky Investment Partners also has a marketplace of clients worldwide with different investment profiles and ambitions and we allow our clients to trade casks between themselves that can be facilitated via ourselves for a fee of 5%.
Of course, there are also private investors or collectors looking to purchase mature stock and this exit strategy is incredibly valuable when considering the bidding wars that begin after the eight-year benchmark.
And finally, you may decide to bottle your own whisky and you absolutely can do so. Please note that excise duty will be paid at this point and there may be additional licensing requirements.
How Does Fractional Ownership of a Cask Work?
Fractional ownership is where a number of different individuals own one cask. Fractional ownership has both pros and cons for the whisky investor and is usually geared towards Investor Clubs looking to invest collectively so a group of people all own a share of the cask. Casks are a tangible asset so it is impossible to break up the real ownership of the cask as it is not listed on a Stock Exchange, where you can buy increments of it. The benefit of this is that you can participate in a market for a price than is much lower than the norm. The downside is that all owners of the cask need to have the same mind-set and agree on an exit strategy.
What Happens if People Stop Drinking Whisky?
This is the only potential risk of investing in whisky, but demand has been continuing to grow for whisky over the last 30 years all around the world, so there is no reason to expect that it will fall in popularity in the near future. Quite the opposite is more likely, with continued growth.
Why is Whisky so Popular Among Investors?
Whisky has proved itself to be an excellent alternative investment. As a tangible asset, it offers more financial security than stocks and shares and the nature of Whisky means that it rises in value as it matures. Historically, Scotch Whisky has delivered returns of 15% pa over the last decade and whisky casks are amongst the safest and most secure assets you can hold.