An email regarding investing in casks – my response

The email below was received on 7th February 2025 and the response took quite a while to write out, so I thought I’d post it here for any other people with the same question

Hi
I’m interested in purchasing a cask.
I would like to know your thoughts on this as I see you do not recommend it.

I look forward to hearing from you.

Best Regards
XXX

Hi XXX,

Thank you for getting in touch.

In general, there are a lot of risks involved in buying casks of whisky. When we started selling casks back in 2010, the aim was to make casks available to shops, whisky clubs and groups of friends who were enthusiastic about the whisky industry. Buying a cask as a group of 10 friends can be a lot of fun and there is relatively little risk per person. We were able to access batches of casks that were left over after blending processes or when distilleries swapped stock to use for their own products.

The issues really started around 2020 when investment companies started pushing sales, because they always seem to downplay the risks, or don’t know enough about what they’re talking about in order to explain them properly.

Approximately 1 in 5 casks will leak, by which I mean a small trickle somewhere on the face of the cask that will leave a visible mark on the wood. On paper, you might not notice that it has happened.

Approximately 1 in 15 casks will leak badly enough that you would notice by looking at the figures on a computer screen. It’d be noticeably lower in content that other casks of the same batch.

Approximately 1 in 50 casks might leak to empty, or near enough to empty as to have next to no value.

Below are how the figures should work:

Distilleries can produce a barrel of new make spirit (zero years old whisky) for around £300-£500. We’ll be selling zero year old from a fairly well known distillery on the 18^th February from around £827 per barrel. We purchased this from the producer and are obviously making a profit in the sale. This barrel will contain 200 litres at a strength of 63.5%, which is 127 litres of pure alcohol. After 10 years, it might be expected to contain around 100 litres of alcohol (around 2% per year will evaporate). You could bottle this whisky at 50% strength into 700ml bottles and it might then yield 100/0.5/0.7 = 285 x 70cl bottles. Storage charges in our warehouse are £0.32 per week, which is £16.68 per year, so after 10 years you might have paid £200 in storage charges. Storage charges do go up incrementally so it might be a little bit more. The total cost, excluding any samples and anything else you might want to do with the cask would therefore have been £827 + £200 = £1027, which means the liquid in each bottle will have cost £3.60.

Excise Duty per bottle has just gone up again in February to £32.79 per litre of alcohol, so the Duty on the cask at today’s rates would be £32.79 x 100 = £3279 +VAT, which would be £11.48 per bottle plus VAT.

Bottling costs are around £3 per bottle plus VAT=£3.60

Assuming you were a shop in the UK, the bottles would therefore have cost you £3.60 + £11.48 + £3 = £18.08. You’d be able to reclaim any VAT and then add it on again when you retail it so I haven’t included it here. Realistically, if you take £12 profit, you can then sell the bottle for £30 plus VAT which is £36. This is fairly easily achievable in today’s market. By the time you’ve paid Paypal fees on your sales you might make £10 per bottle, meaning a profit of £2850 on your original £827 (plus £200 storage) purchase. Pretty good – I think it works out at about 10.75% cumulative interest if you treat the storage costs as paid upfront.

If you’re a private owner, then you have to pay the VAT on the Excise Duty and the VAT on your original cask purchase price in order to release the bottles from the bonded warehouse. That would be the above mentioned £11.48+VAT = £13.78 Excise Duty per bottle, plus VAT on the purchase price of £827 which is £165.40, or £0.58 per bottle. This is £14.36 on top of the £3.60 that you’ll have already spent on the liquid and the £3.60 bottling charges. This gives a total amount spent per bottle of £21.56. Very good value for a 10yo Single Malt, but the problem is you’ll have 285 bottles of it! As a group of 10 friends, this works out well, with 28 bottles each usually deemed more than enough.

Taking all of the Excise Duty and bottling costs out of the calculations above, if you wanted to buy a cask and then sell it in 10 years as a cask, you’d have spent £827+£200 = £1027, plus another £54 on regauging the cask (£45 plus VAT to check the quantity in the cask) in order to sell it. A total of £1081. Somebody coming to buy the cask from you, will be wanting to make all of the same calculations as above, starting from a bottle price and working in reverse. They’ll start with something like a £40 retail price and take off the VAT and the Duty and that will leave them at £21.86. They’ll want 40% of this amount to be profit margin, leaving £13.11. They’ll then account for the fact that they’re paying for the bottling and labelling and that will take it down to £10.11 or lower. £10 for the liquid in a bottle works out at £10 / 0.7 / 0.5 = £28.57 per litre of pure alcohol. If your cask had 100 litres of pure alcohol, they’d offer you £2857 for it. If your cask had leaked, they’d offer you less, because their offer is per litre of alcohol. Nobody should ever be selling a cask of 10 year old whisky on the basis of what it was filled with 10 years previously. The buyer is buying a complete unknown and the cask could be empty.

The final paragraph above is where the problem arises for so many people buying a cask of whisky. If you pay £827 and sell it for £2857 then that is obviously great. If you buy a cask of new make spirit for £2500 and sell it for £2857 then it’s not great at all. If you pay £827 and you lose 50% of what should have been remaining in the cask through leakage, it might be worth £1400, so it’s not good, but it’s maybe salvageable. If you pay £2500 but lose the same then you’ve obviously made a big loss. People who pay too much for newly filled casks are likely to be in for a world of pain when they try to sell their casks.

Most of the investment companies are selling for around the £2000-£2500 price because they are quoting the percentage returns that are possible for an £800 cask and then they are selling the same cask for £2000. They are taking most of the buyer’s 10 years of potential profit, taking no risk themselves and but taking the risk-taker’s (the buyer) reward.

If you do decide to go ahead and buy a cask, you should confirm the method of storage from whoever you buy from.. If it is stored on its end on a pallet, then the chances of leakage are much higher than those I quoted above. If it is stored horizontally in racks or wooden rails it should have lower evaporation and a lower chance of leakage.

Good luck with whatever you decide.

If you have any other questions, let us know, or if you’re ever in the area feel free to call in and the whole process will become clearer when you see the casks lying in a warehouse.

Many thanks,

Martin Armstrong

Whiskybroker Limited