Classic cars, rare whisky, wines, coins and other collectibles are viable investment options, and a suitable addition to a diversified portfolio. With a combination of savvy investment and luck, these assets will appreciate in value over the mid- to long-term.
Personal use assets also have one, significant, advantage over other asset classes. They’re exempt from capital gains tax.
Collectibles: Excellent value retention
Even during economic downturns, tangible items like art works, antiques, diamonds and classic cars tend to retain their worth.
Investing in scarce and beautiful items that you can hold, examine and appreciate is a satisfying alternative to trading in uncertain financial markets. In times of economic stress, it can also end up being a more solid investment.
South African tax rules for luxury assets
In South Africa, tax exemptions apply to luxury items only if they’re owned by individuals. When assets are purchased by companies or held in trusts, they attract capital gains tax at the time of disposal.
Also, the tax benefit is limited to effects acquired for personal enjoyment and aesthetic value. Any items used for the purposes of a trade are subject to capital gains tax.
How the tax benefit for personal luxury assets applies
As an example, consider an art collector who invests in artworks by South African Masters like Irma Stern, Maggie Laubser and Gerard Sekoto.
These works are exempt from tax, provided people are not charged to view the art.
Similarly, someone who buys an antique hand loom for their own use and enjoyment wouldn’t be liable for capital gains tax. However, if the loom is used to weave cloth and the cloth is later sold, the loom would, in theory, attract capital gains tax at the time of sale.
Outstanding returns on collectibles
What financial returns do investments in luxury assets really yield? Quite a lot, if the 2019 Knight Frank Luxury Investment Index is anything to go by.
This global index tracks the sales of the most popular luxury asset classes and publishes the results in an annual wealth report.
So based on the report, which asset classes have performed the best in the past 12 months?
Best-performing luxury asset classes
Rare whiskey is the out and out winner with a 40 percent leap in value, year-on-year. If you think that’s remarkable, the 10-year return is 582 percent!
Over the past year, coins have appreciated by an average 12 percent. Collectible wines and artwork have shown an overall appreciation of about 9 percent, and luxury watches have appreciated by an estimated 5 percent.
That kind of performance is better than we’re getting on local stock markets.
What are the outstanding asset classes in terms of ten-year growth? According to the index, if you’d invested in the right classic cars, your return would average 258 percent. This is followed by coins at 193 percent, art at 158 percent and wine at 147 percent.
Luxury assets as collateral
Along with the tax benefit of luxury personal assets, these assets have another attractive feature – when funds are needed, they can be used to secure short-term loans.
This means you can unlock the value of a luxury asset without having to sell it.
At lamna, we offer fast, discreet loans against the value of a wide range of assets, from luxury watches and jewellery to vehicles or artwork. For more information about using an asset to secure a short-term loan, contact us on 086 111 2866 or simply complete and submit our online application form.
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