Considerations for investing in whisky

Richard Grimster, Head of Tax, Price Bailey
Hello, I’m here with Andrew, the Managing Partner of The English Distillery.
Andrew, would you tell us a little bit about the business?

Andrew Nelstrop, Managing Director, The English Distillery Co.
The English Distillery is home of The English Whisky Company, which was England’s first registered whisky distillery back in 2005.
It hadn’t been done for over a hundred years, so we were the first registered whisky distillery in modern times. We’ve been distilling since 2006.

Richard Grimster
Amazing. Whisky is also something people now see as an investment – that’s what we’re here to talk about.
People might buy bottles to invest in, or indeed casks. In that context, what do you think drives the price of bottles? Is it rarity?

Andrew Nelstrop
With bottles, it’s definitely rarity – and to some extent, brand.
Most well-known distilleries will release special bottlings for particular events or celebrations. Those tend to be more sought-after, mainly because there are fewer of them.
Even here at The English Distillery, we have some one-of-one bottles that even I don’t know about – my father created some of those! They’re very rare and hopefully quite valuable.But brand is also important. Big names like Macallan command higher prices because everyone wants one.
That said, there’s no point buying a bottle of Macallan you find in Tesco – that’s unlikely to appreciate. You’re better off drinking those!

Richard Grimster
And when it comes to casks, that’s probably a higher barrier to entry?

Andrew Nelstrop
It is. I’m quite anti the idea of buying casks purely for investment purposes.
That’s not to say I’m against people buying a cask because they’re interested – it can be great fun and a fascinating thing to do. Buying a cask is expensive – in the UK you’re looking at anywhere between £2,000 and £10,000.
If you’re doing it out of genuine interest in the distillery or in whisky, it’s exciting. You can lay it down for ten years, perhaps change the type of cask it’s maturing in, and over 10, 20, 30 years it can be very enjoyable to follow its progress. The flip side is that there’s a lot of advertising about “investing” in casks. I’m quite against that side of the business.
Often, you don’t know where your cask actually is. You might just be putting money into a fund investing in whisky, rather than owning your own cask – a bit like buying a leg in a racehorse. There are safe ways to do it and unsafe ones, but it’s not regulated. So you have to really trust who you’re giving your money to.

Richard Grimster
So going directly to the distillery and having a vested interest is the best route?

Andrew Nelstrop
Yes, absolutely. If you can buy directly from the distillery, you’re in the right place.
That cask might not go up in value, but at least you know it’s there.
Any distillery that sells you a cask of whisky will let you visit and see it. If you buy through an investment firm, that’s never going to be the case.
There’s really no need for an intermediary.

Richard Grimster
Are there situations where casks from well-known brands become available through brokers?

Andrew Nelstrop
Yes – some big brands have periods where they don’t sell casks. We’ve just had an incredible 20 years in whisky, and during that time many distilleries stopped cask sales.
But there are still older casks in circulation, owned by brokers or independent bottlers.
Occasionally, there’s the chance to buy an older cask from a particular brand, but you really need to do your homework. Most people who can afford a cask are already at an age where they might not want to wait 30 years to see a return. Some do buy casks for the next generation – for godchildren or their own children.

Richard Grimster
That’s a nice idea – a long-term family gift.

Andrew Nelstrop
It is, but people should be aware of the ongoing costs. If you buy your godson a cask of whisky, the price might include ten years of storage.
But after that, someone has to start paying annual rent on that cask.
When your godson turns 21, he might not want 400 bottles of single cask whisky!
So the cask could sit there for decades, with rent accumulating.
Then there’s duty and VAT to pay when it’s finally bottled – and some whisky will have evaporated by then.
So 40 years later, someone’s writing a very big cheque to get that cask out of bond and into bottles.

Richard Grimster
And that evaporation – that’s what’s called the “angels’ share”?

Andrew Nelstrop
Yes. In Scotland, it’s traditionally around 2% per year.
Here in Norfolk, it’s more like 5% – it’s warmer and sunnier.
Elsewhere, it can be even higher – bourbon might be more, and Indian whisky can lose around 14% annually.
The whisky matures faster in warmer climates, which is the upside.
But if you want a 40-year-old whisky, the hotter the climate, the less likely it is to survive that long.
By law, whisky must be at least 40% alcohol when bottled – if it drops to 39%, it’s no longer legally whisky.
At that point, your cask becomes effectively worthless.

We recently had a cask owners’ day here, and many people left thinking hard about what to do with their casks.
A nice approach is to bottle some of it every five or ten years – it spreads the cost and gives you something to enjoy along the way.

If you’re buying a cask purely as an investment, remember that the distillery probably won’t buy it back.
You’ll need to find a buyer, although independent bottlers might be interested in a one-of-a-kind 40-year-old English or Scotch whisky.
But there’s a lot to think about – and 40 years is a long time.

Richard Grimster
Plenty can happen in that time!

Andrew Nelstrop
Exactly. Buying a cask is fantastic and great fun, but it comes with a list of important considerations.
Some of the advertised returns are, shall we say, a bit optimistic.
It takes at least three years before spirit can legally be called whisky. So yes, returns can potentially be good – but it’s a very long game, and over 40 years they need to be really good.

Richard Grimster
And that angels’ share you mentioned is actually why cask whisky qualifies for capital gains tax exemption – because it’s classed as a wasting asset?

Andrew Nelstrop
Yes, exactly. After 30 years, we generally say about half of the whisky has evaporated.
What’s left should be more valuable, and it should taste better too!
It’s the kind of investment you might make if you have spare money and want to have some fun with it – but I wouldn’t raid my pension to do it.