Tax

Everything you always wanted to know about taxation of acquisition and sale of art works: auction and private sales.

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Having spent a lifetime painstakingly assembling an art collection, it is hardly surprising that many collectors give careful thought to what will happen to their collections after they die. The tax implications of gifts and succession planning can have a significant impact on a collector's approach. 

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Tax planning for art collectors

Written by Published in Tax

This Know How Bulletin deals with tax efficient planning for art collectors. It looks at the wider economic and family ramifications of holding art before considering the UK taxation consequences.

It is not too technical and rather written to assist in formulating the decision making process as to how to deal with collections. It also gives an overview of different art holding structures - holding art in one’s own name, through a trust or using a charity and sets out some of the tax breaks given to those who give their collections to the UK nation.

As art values have continued to rise in defiance of the general economic gloom, what for most collectors started as an impulse and then became a hobby, has proved a very successful investment! The art collection now frequently represents a substantial proportion of a family’s wealth and has hence become a key part of the family’s financial and succession planning.

Before even thinking about financial planning, collectors should ask themselves what they want to do with the collection both during their lifetime and after death:
? Is it primarily for personal enjoyment and satisfaction?
? Is it a legacy and if so with what objectives?
? Has it become partially an investment?
? Or is it to serve wider philanthropic goals?

Often it is combination of these things and for some families the collection becomes a cultural legacy, acting as a focus for involving family members in wider social projects.

The wishes of the original collector may change over his or her lifetime and may differ from those who inherit the collection, so flexibility can be important. It is often advisable to consider whether and when to involve the next generation in this aspect of a family’s wealth.

While tax should never be the sole consideration, its impact can be substantial, so it can be an important influence on selecting a suitable holding structure.

The main structuring choices are whether to hold artwork in one’s own personal name, through a trust (possibly with an underlying company) or foundation, or alternatively whether to give it away to a charity or to ‘the nation’.

A brief overview of the UK tax considerations are set out below. It is not possible to cover more than one jurisdiction in a short summary, but it will be clear that similar considerations and issues arise elsewhere. Many collectors will indeed have tax affairs spreading across several jurisdictions and specific advice
should always be sought.the artworks are re-exported.

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