How to protect your private assets

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In the world of high-value assets, private assets – or ‘chattels’ – are more than ever being regarded as an investment alternative to stocks and shares. However, as there is no daily official consolidated list to track these treasure assets, what trusted advice do savvy investors need to be aware of?

Chattels may conjure up images of Rolex watches and fine art, but the word can be traced back to the French term chatel, meaning property or wealth, originally deriving from the Latin captale, referring to livestock or movable property. Essentially, chattels didn’t just used to be your most valuable collectable items, they included livestock and even wives!

Thankfully, modern society recognises the importance of treating everyone with respect and dignity and not as a possession so, in investment terms, chattels are collectable pieces that appreciate in value over time.

The allure of these tangible pieces is obvious. But, beyond their aesthetic beauty lies a wealth of investment potential – like, scarcity value, Capital Gains and Inheritance Tax (IHT) benefits – all of which making them a favourable investment choice. 

However, investing in chattels requires accurate valuations and being aware of tax breaks – and receiving trusted financial advice when it comes to best practice, taxation and estate planning is crucial.

In recent years, the investment landscape has witnessed a significant shift towards alternative assets, such as fine wines, and whisky. Chattels have emerged as a compelling option for investors looking to diversify their portfolios. But whether you are a seasoned collector or a newcomer, how do you know what the right investment options are to enable you to grow wealth, preserve these pieces and guarantee investment gain for generations to come?

Obi Nnochiri, Head of Private Client Consultancy (London) at SJP Wealth Management

Luxury watches

The world of luxury watches has witnessed a remarkable surge in popularity in recent years. The most luxurious and intricate designs out there have become sought-after assets for collectors and investors because luxury watches embody precision, craftsmanship, and timeless design. Unlike many other valuable assets, if they are antique or vintage, they are not subject to capital gains tax in the UK owing to their mechanical functions. 

For CGT purposes they are regarded as machinery with a predictable life expectancy of less than 50 years. So, for collectors, they make an attractive option for those seeking to diversify their investment portfolio.

In the world of luxury watches, the race to the pinnacle never stops. Limited editions, rare complications, and vintage pieces from renowned Swiss manufacturers such as Rolex, Patek Philippe, and Audemars Piguet continue to command staggering prices at auctions. Certain watches have become iconic, with values that only increase over time. Models like the Rolex Daytona, Patek Philippe Nautilus, and Audemars Piguet Royal Oak are perennial favourites among collectors.

Maintaining the condition of your luxury watch is essential for retaining its value. Regular servicing and keeping all accompanying documentation, including original boxes and certificates, is crucial. Professional valuation services can provide accurate estimates of your watch’s worth.

It’s vital to ensure your precious watch is adequately protected. That’s where insurance is essential because, let’s face it, accidents can happen, and losing or damaging such a valuable possession could be devastating.

It’s worth keeping in mind that some insurers may be reluctant to underwrite these high-value assets, however, specialised insurers like Lloyds of London and Zing Cover cater specifically to the unique insurance requirements of luxury watch connoisseurs.

While luxury watches may potentially appreciate over time, and their life expectancy means they’re exempt from Capital Gains Tax, caution is advised in their management. Excessive buying and selling may inadvertently attract the attention of HMRC, who might tax your assets if your activities resemble those of a watch trader.

The ‘fine art’ of investing

Fine art has always held a special place in the world of investments. The appeal lies not only in the aesthetic beauty but also in the potential for substantial returns on investment. Art has the power to transcend time, culture, and emotion. It offers a unique opportunity to invest in the creative genius of artists, and its cultural significance is undeniable. Investors are drawn to the diversification art offers to their portfolios.

The art world is continually evolving, with emerging artists gaining prominence all the time. Though this can make investing in art intimidating, there are resources available for those looking to start. Auction houses, galleries, and art investment firms provide valuable insights and opportunities for budding art investors. Seeking trusted advice will help you gain confidence in which new artists to keep an eye on, or whether you should invest in work from established ‘blue chip’ artists like Pablo Picasso, whose pieces continue to appreciate in value.

There are practicalities to consider in this creative space: storage, climate control, and insurance are essential to safeguard your art collection. Regular valuations by certified appraisers help you keep track of the ever-changing value of your art pieces.

Luxury handbags

Designer handbags have evolved from fashion accessories to coveted collectibles with exceptional investment potential. Why? The allure of luxury handbags lies in their combination of fashion, craftsmanship, and exclusivity. Brands like Hermès, Chanel, and Louis Vuitton have created cult classics that maintain their value and can even appreciate.

Limited-edition releases, unique materials, and collaborations with artists are driving the latest trends in handbags, while styles including the Hermès Birkin and the Chanel 2.55 are continuously sought after.

Maintaining the condition of luxury handbags is paramount. Proper storage, regular cleaning, and careful handling can prevent damage and maintain their value. Certified authentication services can verify the authenticity of your handbag, which is crucial for an accurate valuation.

Unlike traditional investments, the tangible nature of chattels is what appeals to many investors. However, the lack of awareness about the importance of preservation and protection poses a significant risk. These assets are not only investments but also pieces of history and culture. Neglecting their care can result in irreversible damage and loss of value.

There are no hard and fast rules to protecting and preserving your chattels, but what ties these investments together is the necessity for valuations, insurance and understanding the tax benefits, which is why you should always seek the advice of a trusted financial advisor.

The chattel market

Accurate Valuations

Knowing the true value of your chattels is paramount. Professional valuations are essential, especially when considering insurance, selling, or passing down assets to heirs. Experts in the field can assess the condition, provenance, and current market trends to provide a fair and accurate valuation. You should also have your pieces valuated regularly so there is no dispute in its value, particularly if they form part of your estate.

Insurance Protection

You should treat the protection of your chattels investments as non-negotiable. Adequate insurance coverage safeguards your assets against theft, damage, or loss. It’s crucial to choose a policy tailored to the specific nature of your chattels, whether it’s a rare watch, a valuable piece of art, or a designer handbag collection. 

Security is essential, so consider employing advanced security measures such as tracking devices or tamper-evident tags. These technologies not only deter theft but also increase the chances of recovery in case of loss.

And take photos of you wearing or in possession of such items as added evidence of ownership or recording the purchase transaction on video.

Tax advantages: Inheritance Tax and Heritage Relief

Estate planning is a vital aspect of owning chattels, particularly when you wish to pass them on. In the UK, Inheritance Tax (IHT) can be a substantial burden on estates. However, there are strategies to minimise this tax liability. Under the guidance of expert advice, you can make the most of available allowances and exemptions…

Heritage Relief (Conditional Exemption)

If the owner of a work of art or heritage property wishes to defer Inheritance Tax (IHT), either on death or on a lifetime gift, he or she can consider exemption from IHT under the conditional exemption regime. Capital Gains Tax (CGT) can also be deferred in certain circumstances. 

For example, if the item or property is of the requisite quality, i.e. preeminent, HMRC will grant relief from a tax liability that would otherwise be due; in exchange for which, the recipient has to give various undertakings, generally in terms of preserving the item in question and providing public access to view it. IHT and/or CGT are then deferred unless a chargeable event occurs, causing the conditional exemption to end and tax to be “clawed back”.

Wills, Intentions, and Estate Planning

A well-structured will is crucial when it comes to chattels. It ensures that your assets are distributed according to your wishes, avoiding potential disputes among heirs. Be clear about who receives which chattels, and don’t forget to consider any specific conditions or restrictions you’d like to impose.

Cataloguing Your Collection

Maintaining detailed records of your chattels can simplify the estate administration process. Include photographs, descriptions, valuations, and any relevant documentation, such as provenance certificates.

Seek Legal Advice 

Engaging a legal professional experienced in estate planning and chattel management can be invaluable. They can help you navigate the complex legal aspects of owning and transferring chattels.

Passing on the legacy

If you have a passion for chattels, sharing your knowledge and enthusiasm with your heirs can be immensely rewarding. Educate them about the value, history, and significance of your assets. This not only fosters a deeper appreciation but supports families in communicating about money and values while ensuring the preservation of your legacy and protecting your intentions for your estate. You might also choose to communicate the sentimental value of your pieces so that they remain in the family as an heirloom for generations to come.

Alternatively, instead of waiting until your passing, consider gifting select chattels to your heirs during your lifetime. This can have several advantages, including potential tax benefits and the opportunity to witness the joy and appreciation your assets bring to your loved ones while you are still with them.

Chattels are emerging as the preferred investment choice for those seeking an alternative to traditional stocks and shares. Beyond their aesthetic allure, these tangible treasures hold promising investment potential, thanks to factors like scarcity value, capital gains tax benefits, and inheritance tax advantages.

However, navigating the intricate world of chattel investments requires careful consideration of accurate valuations, specialised insurance protection, and tax strategies. Whether you’re a seasoned collector or a newcomer, to safeguard your legacy and make the most of these investments, working with trusted financial experts who understand the nuances of each category is paramount to protect and preserve your assets for generations to come. 

For more information, see sjp.co.uk