There has been a remarkable increase in the volume of Scotch whisky cask sales in recent years, attracting interest from buyers across the world. However, it's important that anyone looking to buy a cask understands the process. In this short blog, we discuss some of the core principles relevant to cask purchases and the top tips that buyers should be mindful of when purchasing casks of scotch whisky.

Scotch whisky is distilled in over 130 distilleries throughout Scotland and is exported worldwide, currently estimated to be in the range of approximately 180 countries. Scotch whisky has long held a global appeal to consumers who recognise the quality of the spirit with global export growth fuelled by an increasing trend of brand premiumisation as consumers (and investors) look to obtain access to premium and rare bottles and casks. According to figures released by the Scotch Whisky Association, the value of global exports of Scotch Whisky increased in value by 37%, to £6.2bn in 2022.

The increase in interest is perhaps attributable to (or at least fuelled by) a wide range of investment reports indicating a rapid increase in cask valuations as well as well as reported sale figures disclosing vast sums for single casks of Scotch whisky. Indeed, one of the most widely shared statistics is the most recent Knight Frank Index reporting that the value of rare Scotch whisky has risen by 540% during the last decade; this is faster than any other collectable luxury asset, such as watches, art or classic cars.

Growth factors driving Scotch whisky cask valuations

Whilst the majority of Scotch whisky is sold once bottled it has always been possible for consumers (or investors) to purchase whisky casks either for future personal use or as an investment vehicle.

Casks can be bought at a young age once they have been set down for maturation and this stage ordinarily presents a reasonable market entry point for consumers. By contrast, rare and matured casks can be an appealing prospect for collectors or investors and as such, are likely to attract more significant valuations.

However, there are a number of important factors that drive the valuation of Scotch whisky casks, and it would be far too simplistic to equate cask age to higher premiums. Factors such as: provenance, authenticity, rarity, cask quality and liquid quality are all important elements that drive cask value.

Regulatory principles

Scotch whisky casks must be held in a bonded warehouse under duty suspension. A bonded warehouse is a UK tax authority (HMRC) controlled warehouse where the goods stored and held are free from duty and VAT. Bonded warehouses are those which the HMRC have granted an official WOWGR licence (Warehousekeepers and Owners of Warehoused Goods Regulations). This authorises a business to store and move goods with the payment of duty suspended from one bonded warehouse to another.

Once a cask is taken out of a bonded warehouse (other than for transfer to another bonded warehouse facility) then the cask is no longer treated as duty suspended. As such, relocating the cask overseas would trigger a significant tax liability to pay the applicable excise duty.

It is also important to note that Scotch whisky can only be moved outside of Scotland in a bottle that's labelled for retail sale and must not be bottled or rebottled outside of Scotland.

Private trader vs revenue trader

Revenue traders must hold WOWGR registration. A WOWGR is needed if you are a revenue trader but not if you own a cask privately. The applicable regulations (Excise Notice 196) define the concept of a revenue trader but do not define the activities of a private individual. In this sense, the legislation is open to interpretation regarding the cask quantities that can be held by private individuals.

Top tips

Here are some of the key issues that buyers should take into consideration when purchasing casks of Scotch whisky:

1. Undertake thorough cask (and seller) due diligence:

Provenance, authenticity and quality: Each cask should be capable of being identified by reference to a unique cask number linked to the distillery. A buyer should have the opportunity to visually inspect the cask, firstly to ensure that it exists but also to visually inspect the cask quality, current condition and storage conditions. Often buyers are given the opportunity to test cask samples too! The Scotch Whisky Association advises that: "Any company offering Scotch Whisky for sale should be able to confirm whether it is a Scotch Malt Whisky or Scotch Grain Whisky, the name of the distillery where it was produced, the year of distillation and a cask reference number".

- Seller's status: In addition to verification of cask title, a buyer should assess the seller's credentials and expertise in the sector. For example, if the seller is a revenue trader, do they hold WOWGR registration? Cask brokers sell casks on behalf of others and generally do not own the casks they sell. If purchasing a cask through a broker, it will be critical to ensure that the cask can transfer to the buyer and that the broker can effectively procure the transfer of title.

2. Delivery Order:

    The industry term for the transfer of cask ownership is referred to as the 'Delivery Order', which will need to be signed by the seller (or his/her representative) and the new cask owner and sent to the distillery/ brand owner so that they can update their records accordingly. The Delivery Order ensures that ownership of the cask is transferred into your name at the warehouse where the cask is stored. Ultimately a Delivery Order is a certification from the warehouse that holds the cask for you, confirming that it exists and is recorded in your ownership title.

    It is critical to ensure that the entity purporting to sell the cask is the legal owner. Following completion of a cask purchase, the distillery will need to register the transfer of cask ownership and a seller should be called upon to facilitate that documentation.

    3. Insurance

      A buyer should check the scope of insurance coverage and ensure that it adequately covers a range of foreseeable insured losses i.e. cask damage, cask loss, theft or leaking casks!

      4. Post sales service

        It is common practice for a distillery/ warehouse to offer buyers the ability to visit the cask from time to time. A buyer should be comfortable in knowing where the cask will be stored and crucially if the cask will ever be moved to a new facility. A buyer will also want to be clear on the terms and conditions of storage, including what fees will apply to the continued storage of the cask.

        A warehouse keeper should undertake regular cask quality checks and the buyer should be comfortable that this service is offered as standard practice and narrated in the cask sales and warehousing agreement.

        5. Duty payment:

          If a buyer wishes to bottle their cask, excise duty will be triggered when the bottles are dispatched to the owner. The duty due is significant and will be based on the rate of duty applicable at that point - not when the cask was purchased. Thus the purchase price of the cask is only the initial outlay Also, movement of the cask under bond is strictly controlled and can only be carried out by authorised operators, which will likely incur additional fees.

          6. Bottling:

            Distilleries often place restrictions on bottling operations and so make sure that you understand what restrictions a distillery may impose and how this may impact your future bottling plans. Single Malt Scotch Whisky must only be bottled in Scotland. Bear in mind that most distilleries will hold trade mark protection over the brand names and the terms and conditions of sale will likely impose contractual restrictions on the use of the brand name should you sell or bottle your cask. Buyers should therefore assess whether any conditions apply, particularly if you are not purchasing directly from the distillery.

            7. Remember the angel's share:

              A cask will lose roughly 2% of its contents through evaporation each year. Scotch whisky must be bottled at a minimum strength of 40% alcohol by volume and so this will be an important factor to take into consideration when receiving a final bottling calculation.

              8. Storage payments:

                Buyers must keep up to date with applicable warehousing fees. Depending on the terms and conditions in force, distilleries may exercise a cask lien in respect of unclaimed storage fees.

                9. Record keeping:

                  Buyers should retain up to date records of casks purchased and also inform the distillery/ warehouse of any change of address so that the distillery or warehouse can contact the buyer and inform them of any unpaid fees or changes to terms.

                  10. Planning for the future and avoid becoming an unclaimed cask owner

                    Historically, a significant number of casks remain unclaimed across Scotland's distilleries. If a buyer has changed address or has died without listing the cask in a Will then it can be very difficult for the distillery or warehouse to trace the cask owner. Finally, if you wish for the cask to be passed down to your beneficiaries on death then it will be essential to include the relevant cask details in your Will.

                    Brodies has extensive expertise advising on the purchase of Scotch whisky casks. If you are looking to acquire a cask and would like to discuss how we can assist, or any of the issues covered in this blog, please get in touch.