Time is money: Investing in watches

Investing in watches, particularly vintage and high-end models, has become increasingly popular due to their potential for appreciation in value and unique tax advantages. This article outlines the key tax reliefs available to individuals considering watches as an investment in the UK.

I’m considering investing in watches – what should I know?

Not all watches make a good investment

Just because a watch is expensive doesn’t mean it will hold or increase in value. Brands like Rolex, Patek Philippe, and Audemars Piguet have models with strong resale histories – but even within these brands, only specific references tend to appreciate. Proven demand and a documented value track record are crucial considerations. It’s worth noting that past growth of certain models are not indicative of future performance.

Buying new can be difficult

The best investment pieces are often the hardest to buy at retail. Many premium brands sell through authorised dealers, who typically reserve sought-after models for their ‘best’ clients. Waitlists for these desirable models can sometimes span years. As a result, most luxury watches command a premium on the second-hand market, with prices often well above their original retail price.

Condition matters, or does it?

Whilst the physical condition of the asset is important, collectors typically place higher value on the completeness of the product. A watch accompanied by its original box, authenticity papers and receipts is far more desirable than one without provenance.

Counterfeits are an increasing problem

A recent report from Watchfinder & Co. stated that there are a staggering 1,010,572 fake watches circulating within the UK market alone. Notably, Rolex imitations constitute at least half of those counterfeits. It has reached the point where internal movement of the watch requires inspection to verify authenticity.

Liquidity is limited

Watches are a niche asset class with a smaller buyer pool than more conventional investments. This can make resale slower and more unpredictable, especially if aiming for a specific price or timing a sale to coincide with trends.

Trends are constantly changing

Although gold watches might appear to offer inflation protection due to their metal content, they can underperform in desirability terms. Currently, stainless steel sports models are far more in demand – with many gold models, including certain Rolex references, trading below retail.

Limited edition models

Limited production runs can create scarcity, which may drive up value over time. For example, the Omega Speedmaster “Silver Snoopy” anniversary editions have become highly sought-after on the secondary market. These models (much like Rolex), are hard to come by at retail as we mentioned earlier, hence the increased second-hand market price. However, it’s difficult to predict which models will perform strongly – some limited editions lose value despite their rarity. Brand perception, design, and collector sentiment all play a role, so caution and market insight are essential.

Watch investment requires ongoing engagement with the market, careful buying and a degree of patience. Trends particularly play an influential role – what’s in demand now may not hold the same appeal five years down the line. It’s always important to buy from a reputable dealer, which reduces the risk of trading counterfeits and helps ensure authenticity and provenance.

Why should I invest in a watch?

Capital Gains Tax (CGT) advantages

One of the most compelling reasons to consider watches as an investment is their potential classification as wasting assets under UK tax law. Wasting assets are defined as items with a predictable useful life of no more than 50 years and are expected to reduce in value.

This classification offers significant advantages when it comes to CGT:

CGT exemption: Watches are generally exempt from CGT, meaning you can sell them for a profit without incurring this tax. This exemption allows investors to potentially grow their wealth without the burden of CGT, which can be substantial for other types of investments. Wasting assets are exempt from CGT as long as they are not used for business purposes.

Income tax implications

The Income tax treatment of watch investments can be favourable for casual collectors:

Occasional gains: For individuals who buy and sell watches irregularly, gains from these transactions may not be subject to income tax, as they are often considered personal effects rather than business income.
Trading or investing? It is crucial to understand the distinction between collecting as a hobby and trading as a business. HMRC views these activities differently, and regular trading could potentially attract income tax.

Inheritance tax (IHT) considerations

If a watch is owned at the time of death, its value is included in the estate for IHT purposes.

For those concerned about leaving a valuable legacy, watches can play a strategic role in estate planning. Including watches in your estate may offer more flexibility compared to easily quantifiable assets like property or stocks.

Beyond the tax advantages, investing in watches offers several other attractive features. Unlike stocks or bonds, watches are tangible assets that can be worn and enjoyed daily.

Closing thoughts

Investing in watches can be a rewarding endeavour, offering a unique combination of personal enjoyment and potential tax advantages. From possible CGT exemptions to estate planning benefits and favourable income tax treatment for casual collectors, these timepieces present an intriguing option for those looking to diversify their investment portfolio.

It is essential to seek expert advice and thoroughly understand the market to maximise the benefits and mitigate risks. Tax regulations are complex and subject to change. Consulting with a tax adviser or accountant who specialises in collectibles can provide valuable guidance.

For further advice on the tax benefits of investing in watches, please contact our experts using the form below.

We always recommend that you seek advice from a suitably qualified adviser before taking any action. The information in this article only serves as a guide and no responsibility for loss occasioned by any person acting or refraining from action as a result of this material can be accepted by the authors or the firm.

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