For many clients, investing in fine wines, rare books or old masters can be the ultimate pleasure but the buying process can be fairly complex – requiring careful planning and professional advice.

Unusual assets can be an attractive addition to a well-diversified portfolio, giving an added dimension in terms of interest and the potential to generate long-term wealth appreciation. However, as with any financial outlay, it is advisable to seek specialist advice if common pitfalls in purchasing are to be avoided.

Jamie Gutteridge, Bermuda Trust Company Limited, advises a client who owns over a dozen horses stabled in the UK. She draws a distinction between owning horses for pleasure and as an investment: “Going to auctions and buying your horse are all part of the enjoyment even before you get near a racecourse. However, when viewed as an international investment, appropriate offshore structures should be established for the different aspects of the business: breeding, racing and the operation. Racing for pleasure is less complex but insurance and tax considerations will still apply.”

Many trust companies have experience when it comes to dealing with traditional investment assets. But what happens when an asset comprises classic cars, equine bloodstock or vintage yachts? Bernard Rennell, HSBC International Trustee Limited, Hong Kong, comments: “When considering the purchase of an unusual asset, the main concerns for clients are often tax efficiency and ensuring that an effective ownership structure, which meets their individual needs, is in place – for example, in relation to sales or value added tax.”
Factor in taxes, ongoing maintenance and insurance and the complexities of ownership can be considerable.

“Whilst an offshore company has been the most commonly used structure for families looking to purchase a super-yacht, regulatory changes in some jurisdictions are pushing clients to seek additional ways of structuring purchases,” adds Bernard. “Clients may decide to buy privately, which will then form part of an asset class within an existing trust. Alternatively, combining a family trust with the structuring of offshore life insurance could provide an added layer of tax protection as the yacht would be owned by the life policy and not the beneficiaries or trustees.”

At HSBC Private Bank we can help clients with the financing of unusual purchases, setting up a trust or company to hold the investment or bringing together an expert team tailored to a client’s requirements. We also provide an opportunity for private client advisers to discuss their clients’ wealth management concerns with our specialists, initially on a no-name basis, if required.

“Irrespective of the style, period or part of the world a work of art emanates from, we work with strategic partners on our clients’ behalf to assist with the search, restoration and attribution,” says Phil Salazar, HSBC Trustee (Guernsey) Limited. “We further consult with legal partners to source the most appropriate holding structure. A major consideration is whether the art is to be held in charitable status or not.

“Similarly, for clients interested in rare books we ensure that they work with top booksellers who help them build a collection and advise on developing libraries as well as on valuations,” adds Phil. “We work together to deal with tax and other financial implications, often building relationships with advisers and clients that last for decades.”