Buying and owning art can be one of life's greatest joys. But while the drive to own art is often fuelled by an emotional connection with a piece or the prospect of holding a lucrative investment, it is important for buyers and owners of art to keep their wits about them, from both a legal and practical perspective.
- Acquiring and selling art
- Transporting art
- Maintaining your collection
- Passing on your art collection to the next generation
- Art and philanthropy
This piece is aimed primarily at private individuals with a
Part 5 - Art and Philanthropy
There are a wide range of philanthropic schemes in the
The Cultural Gifts Scheme
The Cultural Gifts Scheme incentivises owners of 'pre-eminent'' works of art and other objects to donate them to museums and galleries in the
If you make a donation to a museum under the Cultural Gifts Scheme, you will receive 30% of the agreed value of the object to set against your income tax or capital gains tax liability, which can be spread over a maximum of five
Sotheby's have worked on some wonderful
Other
If your object is not pre-eminent or you prefer to keep things more straightforward, you can make a gift outside of the
If, after your lifetime, you decide to leave 10% of your net chargeable estate to a charity, the rate of inheritance tax applicable to your estate will be reduced from 40% to 36%. Giving works of art as a gift to museums and galleries in your will or asking your executors to make charitable gifts of artwork in order to meet the 10% threshold could enable your estate to benefit from the reduced rate of tax. To take advantage of this tax treatment, it is essential that the charity is considered a charity for the purposes of
Establishing an
If you wish to establish a more regular pattern of donations to art-related causes, then it may make sense to set up an art charity (sometimes referred to as art foundations) of your own. In the
A
Establishing and maintaining a charity is not a task to be undertaken lightly. It can take time to register a charity with the
Gift Aid
You may wish to consider donating money to
Private Treaty Sales to
If you are considering selling a work of art, and depending on the calibre of that work, there might be a significant financial advantage to selling the work privately to a qualifying
The beneficial tax treatment is best illustrated in an example. Imagine that you had inherited from a parent a piece of artwork that was considered to be pre-eminent. On your parent's death, an inheritance tax liability of 40% had arisen on the value of the artwork, but the charge had been deferred due to the availability of the conditional exemption (see Part 4 for more information on this). A couple of years have passed since you inherited the artwork (which has not increased in value) and you have now decided that you would like to sell it. Both a qualifying
If you sell to the private buyer:
Market value of painting | Ł100,000 |
Ł40,000 | |
Ł60,000 | |
Contrast this with a qualifying sale to the museum:
Market value of painting | Ł100,000 |
Deduct notional inheritance tax at 40% | Ł40,000 |
Value of paintings, net notional inheritance tax | Ł60,000 |
Add tax incentive (25% of total tax liability) | Ł10,000 |
You receive the "special price" of | Ł70,000 |
So, if the sale of the artwork would either give rise to an inheritance tax, estate duty or capital gains tax charge, then a private treaty sale to a qualifying museum or institution is seriously worth considering. The higher the tax (for example, the rate of the estate duty can be as high as 80%) the greater the value of the 'douceur'.
The museum also benefits from the tax advantage, as it does not have to pay the full market price for the piece but the 'special price' instead. This makes the scheme very attractive to acquiring museums.
Acceptance in Lieu (AIL)
Broadly speaking, the Acceptance in Lieu scheme allows you to pay some or all of your inheritance tax liability with a 'pre-eminent' work. As with private treaty sales (see above), individuals wishing to take advantage of the scheme are incentivised with douceur of 25% of the notional inheritance tax that would have been due. Offers in lieu of tax can be a fantastic way of dealing with large tax liabilities, either following a death or after the sale of conditionally exempt objects.
There is a huge range of items that can be offered in lieu of tax. Sotheby's have advised on offers ranging from paintings by Van Dyck to a steam locomotive (!) to Gauguin's last literary manuscript, Avant et Aprčs, the latter of which settled Ł6.5 million worth of tax and is now on display at the
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
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