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Getting a decent return on your money requires hard work and a bit of imagination.

More adventurous and sophisticated investors have long been tempted by the prospect of tax-free returns from investing in wine, and some even enjoy a glass or two or trip abroad in the process — purely for investment analysis purposes of course.

Top of the pile: Fine french wine is still the first choice for most keen-eyed investors.

Why would I want to invest in wine?

Not only are savers struggling for a way to grow their money, but stock markets are also volatile and that makes investing in alternative and tangible assets look attractive.

One such option is wine. Prices of fine wine hit the headlines in recent years when they rocketed from 2009 to 2011, as measured by the wine industry ’s benchmark, the Liv-ex 100. which tracks the prices of 100 of the most soug ht after fine wines.

However a slump hit after this and prices took a dive, before rising slightly late last year and then steadying in 2013.

Investors who like fine wine say that it is a solid alternative asset, in finite supply, that is relatively easily tradeable.

Crucially, as a ‘perishable’ item it is not subject to capital gains tax as long as you are not trading regularly.

If you enjoy a tipple, learning and collecting, it could prove a good way of combining a hobby with something that could make money.

However, this market is only for sophisticated wealthy investors as this is an unregulated asset class so you will not have the protection of the Financial Services Compensation Scheme if things go wrong.

Rise and fall: Prices as measured by the Liv-ex Fine Wine 100 index more than trebled in just eight years, before sliding back.

How much would it cost?

A rosey picture: Wine investment is risky but can produce high returns

A case of wine can cost a few hundred pounds but to build up a diversified portfolio you may expect to have to spend into the tens of thousands.

Putting all your money into wine investment would be very risky, so it should form part of a more balanced strategy that includes more traditional assets.

For all investors, professional storage is an absolute essential. It might seem tempting to scurry home with the wine and put it on the mantelpiece, but that would be a grave mistake.

Instead, you must keep your wine stored in a bonded warehouse.

It will be safe and sound there at a cost of between £7 and £20 per year. The price will also include insurance at replacement value.

Keep the wine in a warehouse in the UK and it is  held ‘in bond.’ This means it is free of duty and VAT.

However, if you decide you want to drink one of the bottles, or just look at it at home, taking it out of the warehouse will incur duty and VAT charges.

HMRC classifies wine as a ‘wasting chattel’ which means it’s an asset that does not have an indefinite life, rather it has a predicted life of less than 50 years, meaning it is free from capital gains tax.

If, however, you routinely buy and sell significant amounts of wine rather like a day trader might buy and sell shares or commodities, then HMRC could classify this activity as trading and you may then become liable for CGT at 28 per cent depending on your marginal rate of tax.

A typical wine collector who sells excess stocks from time to time and who might hold wines for a few years before selling on will not need to pay CGT.

How can I invest in wine?

There are three ways to invest in wine. You could find a wine fund, use a wine merchant, or buy and sell cases yourself.

Wine funds

Investing in a wine fund would outsource all responsibility for selection to a fund manager. This could spread your risk among many different types of grape and vine, ultimately saving you time. You will also be free from any potential biases from wine merchants.

These funds operate as unregulated collective investment schemes.

The financial regulator,the Financial Conduct Authority, has recently clamped down on these types of schemes and warned they should only be marketed to sophisticated investors.

They do not have protection from the Financial Services Compensation Scheme.

However, with a wine fund you do not own the wine and are only trading on the value of the market.

The minimum investment is usually around £10,000 and there are also annual management charges and performance fees to consider. Also, once you try to take your money out you will have a CGT liability, which you do not have with a direct investment.

Wine merchants

A wine merchant will sell you the wine you want to invest in.

You should always deal with an established, reputable merchant. This point cannot be over-emphasised. The reason is that the wine trade is unregulated, making it easy for scam operators to con naïve investors into parting with their money for dodgy bottles of wine.

Readers regularly raise issues about wine investment scams, exaggerated returns, or tempting investment offers that seem to good to be true, so it is important to do your due diligence on who merchants are, how long they have traded for and what other people say about them.

Wine merchants do not charge a direct fee for their services. Instead they take a 10-15 per cent margin on the wines they sell to private investors.  This cost is priced into your purchase.

Trading platforms

There are a number of websites aimed solely at either when buyers or sellers. However, in recent months trading platforms have been launched to bring together both sides of the market.

Websites suc h as Cavex provide tools for buying and selling wine, while Wine Owners acts as social networks for wine buffs.

Users can buy and sell products at agreed prices and see photos and videos of the wine as well as reading reviews, checking previous pricing data  and monitoring the value of their portfolio.

HOW A WINE TRADING PLATFORM WORKS

WineOwners.com was set up by collector and businessman Nick Martin. It brings together buyers and sellers along with reviews and pricing data on wine all in one place.

Users can search, sell and bid for wines and read reviews. They can also access market data and see pictures and video to prove the wine exists.

Nick says investor money is safe on the platform as it is kept separate to the rest of the business. There is also a separate advisory board that monitors the management.

Nick Martin, founder of Wine Owners, says you would need few thousand pounds to start a wine investment portfolio.

He explains: ‘You do not have to spend that much all at once. You can gradually build it up.

‘You then have to decide what to drink and what to keep. Effectively if you bought four cases and just drunk one, you can drink for free by selling the rest.’

What determines the value of a wine?

Wine critics are the fund analysts of this market. A good review from an established critic such as Robert Parker Jnr can send prices soaring.

Once a wine is out there to enjoy, its price reacts to drinking habits: every time a bottle is opened, there is one less for the world to enjoy. A Chateau can only produce a finite number of bottles each year, and these cannot be replenished.

With an excellent vintage, you can expect price growth to last at least ten years after bottling. So be prepared to invest for the medium or long-term.

What are the risks?

As with any investment, the value of wine can sway up and down.

Wine in particular is vulnerable to weather conditions and demand.

The wine investment market has been riddled with scams. It is an unregulated market so it is easy for fraudsters to set up and prey on vulnerable people. There are also examples of companies that have failed to find decent investments and subsequently collapsed.

The Wine Investment Association was set up in 2012 to create a code of practice across the industry.