What is there for the bold investor who doesn’t want to get bogged down with Isas or other tax-efficient but boring investments? Quite a lot, is the answer: racehorses, fine wine and collectable guns are three things that are both enjoyable to own and potentially free from capital gains and inheritance taxes.
Racehorses in training are more than likely to lose money, so the Revenue does not tax them, classing them as a ‘depreciating asset’. That can be handy, particularly because when a horse races on the flat and wins substantial prize money, its breeding value can run into tens of millions.
Take Juliet Cooper, who has hit the equine jackpot more than once. In 2007 her bloodstock agent husband Patrick bought a colt, Curtain Call, for 60,000 guineas in 2007. The following year it was the favourite for the Derby and Juliet syndicated the horse for £3.75 million, tax-free but split with other investors. Curtain Call finished tenth in the Derby but won a career total of £217,000, again tax-free. Counting in training fees, insurance and other costs, it’s fairly safe to assume that the total cost to the Coopers would have been around £150,000 over two years, for a return of nearly £4 million. Sadly, Curtain Call had to be destroyed after breaking a leg, but last year Juliet and partners purchased a filly called Photo Call for around $150,000. After successful runs in Ireland it was sent to the US where it won over $400,000 and was sold for $2 million, again all tax-free and all legal.
Wine is another so-called ‘depreciating asset’ that’s not subject to capital gains tax. Savvy investors who got into the market for fine Bordeaux and Burgundy ahead of the Chinese will have made substantial tax-free gains. But beware: this market is stuffed with spivs eager to relieve you of your money. Go with reputable houses such as Berry Brothers & Rudd, Corney & Barrow or Farr Vintners. Stephen Browett of Farr, the UK’s largest wholesaler, says: ‘Do check that the merchant you intend to deal with is reputable… don’t buy wine from anyone who cold-calls.’
15-year gain on Chateau Lafite 2000
Two-year gain on racehorse Curtain Call
One-year gain on a well-chosen wildfowling gun
But if you’re shrewd, there are good returns to be made. The traditional way to enjoy investment-grade wine is to buy five immature cases and sell three as they age at a profit that leaves you with two cases to drink for free. Or if you’re tee-total, just flog all five and realise your untaxable gain. Browett quotes Chateau Laffite 2000, which was released on to the market in 2001 with a price tag of £1,950 a case and sells today at £12,000 a case, an upswing of more than 500 per cent, free from capital gains tax. But he cautions against short-termism: ‘You should look to hold wine for at least ten years and only buy vintages.’
Guns are also exempt from capital gains tax. Nick Holt runs the Norfolk-based guns and firearms auction house Holts, which has quarterly sales in London. He has seen the market shift in the last three years: it’s still buoyant but demand for some specialist guns has lost steam. ‘There are classic guns like Purdeys that are not as good an investment as they once were but that’s down mainly to fashion. The classic old Purdey investors, who also like to use their gun, are being told not to use certain types of ammunition. And of course they are costly to service.’
But guns can still be attractive investments. Wildfowling guns are currently very popular. ‘Recently you could buy one for £1,000 and sell it the following year for £3,500,’ says Holt. He is seeing big growth in the sealed-bid sales that he set up five years ago: ‘The sealed bid market… is for a lesser quality of gun, so a cheaper investment proposition, but we’re now selling £250,000 worth at each sale; when we started that figure was £30,000.’ Holt’s last sealed-bid sale had an impressive clearance rate (items sold) of 96 per cent.
What type of gun does Holt think will be a good medium- to long-term investment? ‘A proven provenance is always very attractive and we’re seeing a very good market in Edwardian and late Victorian firearms… also guns from Africa and the Raj and any sort of ephemera; shooting sticks and the like, particularly if they were owned by any of the great hunters of the era.’