Are you sipping on a fortune?

Boost your cellars and coffers by investing in the right wine

Wine has long been recognised as a trading opportunity, and the fine wine market is now estimated to be worth between £1bn and £2bna year. Fine wines can improve with age and become tradable in a secondary market.

Wine has long been recognised as a trading opportunity, and the fine wine market is now estimated to be worth between £1bn and £2bna year. Fine wines can improve with age and become tradable in a secondary market.

The value of a correctly stored case of 12 bottles can mature rather well when set against the performance of the FT-SE 100. With global demand outstripping a limited supply, the value of the top 600 wines has climbed by more than 300 per cent over the past five years. Over the same period, the FT-SE 100 has climbed by just over 100 per cent.

As with all investments, risk is a factor. Choosing what to buy, and where and when to buy it, requires careful consideration. The question of when to sell has also become more complex - the increasingly speculative market means fine wine should no longer be seen simply as a long-term investment. However, these obstacles are overcome by collectors and professional wine traders following basic trading principles.

When deciding what to buy, develop your taste as well as knowledge, and trust your own judgement. Take advice from people in the industry. Buy the best, in the best vintages. Stick to first and "super" second-growth Bordeaux, Burgundy from Domaine de la Romanée-Conti, and other top growers such as de Vogüé, Lafon, Rousseau and Roty.

You should also take a look at the new classics, including Penfolds Grange from Australia, Sassicaia from Italy, Vega Sicilia from Spain, and Opus One, Dominus and Ridge from California. Port from Taylor's, Graham's and Fonseca, has also proved a sound buy over the years.

Investors may be attracted by "boutique" wines - some of which have a tiny production of just a few hundred cases - since they have fetched high prices. Le Pin from Pomerol in Bordeaux or Screaming Eagle from California fall into this category. I strongly recommend consultation with an expert before buying, as prices are often astronomically high and can be volatile.

The best prices for fine wine are to be found at release ( en primeur) or as early as you are able to buy, after assessing that a wine is of very top quality. If buying from a merchant, en primeur, be sure you make time to check their credentials. After bottling, wine will not be ready for shipment for two years, and you may feel this wait is too long if you are worried about the solvency of the company. Be very careful about wine investment companies, which can be run by rogues. And prices can be uncompetitively high, leaving little room for value growth.

While the popularity of boutique wines has made the market more aggressive, I still recommend a medium- to long-term view. Investors should expect to hold on to wines for five to 10 years before realising a significant profit.

Appreciation in fine wine prices is of course susceptible to global economic factors, in line with more traditional investments on the stock market. However, as wine drinking and collecting grows, there is an inevitability about the growing scarcity of the best products. Scarcity, maturity and a good write-up by a top wine journalist are the driving forces for value; watching these three is not that complicated.

Collectors of fine wines also need to invest in appropriate storage conditions. Nearly a third of the mature wines I see for potential sale are not fit to be sold. Poor storage, shipping or handling is a common problem. If you do not have a spacious, cool, damp, dark cellar, wine for investment should be bought and stored in bonded warehouses to avoid any duty or local taxes. Such warehouses offer first-class storage and insurance for about £7 per case per year.

Once identified, wine may be bought in several ways - through an auction house, from a merchant or, nowadays, via the internet. All methods offer an impressive choice but the commission levels will vary.

Auction houses charge up to 10 per cent on the seller's side, plus 10 to 15 per cent on pure brokered deals, and 25 to 30 per cent if they hold the stock themselves. Uvine, the company I chair, is an online stock exchange for wine.

Having established the best price on the market, investors should be aware that transactions are not completed overnight; the chain from grower to broker to merchant to shipper and on to a UK merchant can be rather long.

Successful investors are those who know their subject and make sure they enjoy drinking a few good bottles regularly. If the worst comes to the worst and the market is not appreciating the value of a particular wine you hold, I'm sure that your friends will. The Inland Revenue, anyway, has a firm view on taxing the profits from sales in your cellar. Generally, the UK tax regime with regard to wine is benign. If you have set out to trade for profit and carry out regular trading, you will be subject to income tax and capital gains tax.

If, on the other hand, your sale is a clearance from a cellar built up over a long period, generally any benefits you gain will not be liable to tax, being regarded as a wasting asset on the £6,000 property exemption. This is a complex area so you should consult your personal tax adviser.

* Christopher Burr is chairman of uvine, the world's first online stock exchange for wine, which allows people to trade fine wine easily, securely and anonymously (www.uvine.com).

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