The Scottish Mail on Sunday

Money DOES grow on trees

...if you invest in woodland! But be VERY careful if you are tempted by fine wines or fancy a flutter as the owner of a racehorse

- By Dominic Prince

INSTEAD of heading for a bank or building society with a savings pot, what if you decided to buy some fine wine, a racehorse, some woodland or a shotgun as an investment?

They are not run-of-the-mill homes for your savings, but for those who enjoy high-octane investing, they provide the chance of tax-free gains. Some alternativ­e investment­s – including wine and forestry – have shown remarkably good returns over a ten-year period.

WOODLAND

OWNING a piece of forest can bring pleasure as well as decent returns, according to Anthony Wyld, who runs Forestry Investment Consultanc­y, based in Dorset. After a career in the City he went into the forestry broking business, where he looks for suitable investment opportunit­ies on behalf of clients.

Wyld says there are ‘big opportunit­ies’ in forestry due to rising timber and land values. Both the land and the trees qualify for business property relief, which means after having owned the land and trees for more than seven years they are free of inheritanc­e tax.

He says: ‘If you happen to die in the first two years of ownership then inheritanc­e tax will have to be paid, but it is interest-free and payable over ten years. Capital gains tax is payable on the land but not on the value of the tree crop and there is no income tax on timber harvesting.’ But tax is due on any income made from using the land for activities such as sports.

The Forestry Index at the Investment Property Databank shows returns of nearly 11 per cent in 2015. Over three years returns were 15 per cent a year, over five years they were 19 per cent a year and over ten years they hit 18 per cent a year. Ten years ago woodland cost £250 an acre, now it is nearer £1,000.

Wyld reckons you have to look at a minimum investment of £250,000. Groups of investors can get involved for a fraction of that. One way is to look at a specialist fund working on behalf of a large number of investors, such as the Stellar Forestry Fund, run by Stellar Asset Management. The fund requires a minimum £40,000 investment and there is an initial charge of 2 per cent and an annual fee of 1.8 per cent.

HORSES

OWNING a racehorse is a good way to turn a small fortune into an extremely small one and part of the reason profits are free of tax is because losses cannot be offset.

Be warned, owning a racehorse is challengin­g and so it is essential to get good advice to avoid unscrupulo­us operators. Guidance can be obtained from the Racehorse Owners Associatio­n.

Joining a syndicate is a good entry point for the novice investor and mitigates the risks. Joint owners buy a percentage share, such as 5 per cent, and pay an equivalent proportion of monthly maintenanc­e fees plus a share of other costs such as racing expenses and vets’ bills.

One of the most successful investment­s in the racing world was made in 2004. This was when retired solicitor Anthony Pakenham spent 16,000 guineas – all racehorses are sold in guineas (worth £1.05) in the UK – buying a horse later named Sir Percy, which went on to win the Epsom Derby and more than £1.15million in prize money.

The horse was then sold to a syndicate for a multi-million pound sum, free of tax. But Sir Percy’s annual stud income – in the region of £1.4million – is taxable.

More recently, a horse called Toast of New York was bought by trainer Jamie Osborne for €30,000 (£25,000) on behalf of racehorse owner Michael Buckley. It went on to win more than £1.4million in 2013-14 before being sold as a stallion for breeding purposes in Qatar. The sale price – said to be in excess of £10million – was tax-free.

Jimmy George, a director of Tattersall­s, one of the biggest horse auctioneer­s, says; ‘Owning a racehorse is first and foremost about having fun and that is the way anyone should approach it.

‘However, it can yield the most spectacula­r rewards which no other sport or hobby can do.’

WINE

IT USED to be said that if you invested £10,000 in fine wine you could actively trade and drink it for nothing. Wine has indeed proved to be a good investment, but it is an area where dishonest telephone sales staff have thrived, so be very careful. Never buy wine over the phone and above all make sure you do thorough research.

The Liv-ex Fine Wine 100 Index tracks the prices of the 100 most sought-after wines in the world. Livex is a market for fine wines and it acts as a broker between buyer and seller and adjusts prices accordingl­y. It has 440 merchants worldwide who trade using its platform.

Liv-ex director Justin Gibbs says prices on the index have risen by 16 per cent this year – largely due to the weakened pound – with the fine wines of Bordeaux and Burgundy doing best. He says: ‘With a weaker sterling, the secondary market has seen increased buying from euro and dollar-based merchants.’

Some of the headiest examples include a bottle of Chateau HautBrion 1989, which has risen in value by 37 per cent since December to £15,900. A bottle of Chateau Mouton Rothschild 2014 now sells for nearly £15,000, up by a third so far this year. All gains are tax-free.

Buyers will never see the bottles if they want the maximum benefit from tax breaks. Wine that is ‘bonded’ – kept in temperatur­econtrolle­d warehouses – escapes any VAT or duty that would otherwise have to be paid. Expect to pay between £10 and £20 a year for a crate of 12 bottles to be bonded, which includes insurance against loss or damage.

Wine is usually kept at least ten years before being sold. When selling, no capital gains tax is payable on any gains – a tax saving of 10 per cent for basic-rate taxpayers and 20 per cent for higher-rate taxpayers. This is because Revenue & Customs deems wine a ‘wasting asset’.

SHOTGUNS

SHOTGUNS represent another investment where tax can be avoided. They are particular­ly attractive to those who enjoy country pursuits, but many investors buy them because they like the way they look and the fact that they can produce a profit.

Nick Holt from specialist auctioneer Holt’s, which runs four gun sales a year in London, has seen the market shift in the past three years.

He says: ‘It is still buoyant but the market for some specialist guns has lost steam. Some people feel Purdey shotguns are not as good as they once were, but with the capital gains tax exemption canny investors can still make good returns.’ A finely engraved 1960s 12-bore Purdey is priced at about £20,000. A new model can cost £100,000 or more.

Wildfowlin­g guns are in demand and there have been cases of buyers selling just a year later and pocketing a 300 per cent tax-free profit.

At a Holt’s sale in the summer, a star attraction was the Browning shotgun that Bob Braithwait­e used when he won a gold medal for Britain at the Mexico Olympics in 1968. It had been expected to fetch around £7,000 but sold for £10,000.

Earlier this month, Holt’s London saleroom sold a 1987 gun engraved by Angelo Galeazzi – described as a ‘work of art’ and believed never to have been fired – for £17,000.

Holt’s sells about £6million worth of firearms each year. The big growth area is in sealed bid sales, which the auction house set up five years ago. These tend to be for lower value items, such as accessorie­s. The next sealed bid sale is on September 29 in Norfolk.

Before buying a shotgun you must first obtain a shotgun certificat­e. This costs £79.50 and is applied for through your local police force. It involves a police interview and home visit to check on the installati­on of an approved lockable steel cabinet for storing the shotgun or a gun clamp where it can be kept safe. Cabinets cost from about £100 and clamps about £40. Both must be bolted to a solid wall or floor out of sight in the home, such as in an attic.

Holt’s will deliver any purchase made in online auctions to your nearest regulated firearms dealer. Deliveries must be made face-to-face.

 ??  ?? WINNER: Toast of New York sold for millions
WINNER: Toast of New York sold for millions
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 ??  ?? CHEERS: A bottle of Chateau Haut-Brion 1989 has soared in value this year by 37 per cent
CHEERS: A bottle of Chateau Haut-Brion 1989 has soared in value this year by 37 per cent

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