How Taxing is Your Collection?

One of the benefits of wealth can be the acquisition and holding of art and antiques. Collections may be acquired in your lifetime or inherited within a family. They may range from old masters through to contemporary art, but you may be surprised to learn that you need an art accountant, and that tax may be due on the disposal or inheritance of such items. So, in this article we highlight some of the tax implications of your art or antiques collection. 

Taxation of your collection

With each item, you need to be confident that the ownership of your art and antiques is held correctly either personally or through an asset holding structure. You will also be concerned about how to reduce your exposure to tax either on the acquisition or disposal of your art and antiques, or when passing down an item by way of inheritance to your heirs or successors. 

There are several factors that can affect the kind and amount of tax you are obliged to pay including the intention behind your ownership of them (i.e. business, personal pleasure or to pass on as an inheritance) and the value of the item. Taxes that you may be liable for include VAT, Capital Gains Tax and Inheritance Tax.

Minimising your Inheritance Tax liability in respect of your collection  

Lifetime giving 

A gift of art and antiques made during your lifetime can reduce the value of your estate and potentially lower your Inheritance Tax liability.  You can give away your cash or assets as a potentially exempt transfer without them being added to your estate's value on death. However, if you die within seven years of making the gift, the cash or assets will be brought back into your estate for Inheritance Tax purposes. Certain gifts, like those between spouses or civil partners, and gifts on a marriage or civil partnership (up to certain limits), may be exempt from Inheritance Tax. 

It is also important to note, that if the donor retains possession of, for example, works of art after gifting it, or enjoys the benefit of it (such as hanging a painting in their home), it could be considered a Gift with Reservation of Benefit (GROB) and if so, the asset is still considered part of the donor’s estate for Inheritance Tax purposes unless they can establish that they have paid consideration for its enjoyment. 

Acceptance in lieu

If you are facing an Inheritance Tax liability in respect of an art collection, the Acceptance In Lieu scheme may provide a solution. It allows you to donate important cultural, scientific or historic objects and archives to public ownership in the form of museums, archives or libraries. The gift is made on death and the object’s value is used to meet some or all of the Inheritance Tax liability on your estate. Under Acceptance In Lieu, an additional “douceur” (a sweetener) is applied which is an extra 25% of the IHT that would have been payable. Acceptance In Lieu can also apply to land and buildings where the IHT incentive is 10%.

Objects gifted have to meet a specified criteria, namely they must be “pre-eminent” and of particular historic, artistic, scientific or local significance, and be in acceptable condition. They also have to be approved by the Secretary of State for Culture, Media and Sport.

Giving assets to charity

Gifts to charities are entirely exempt from Inheritance Tax regardless of the value of the gift. Furthermore, if the total of gifts to registered charities is 10% or more of the taxable value of your estate, or a component part of your estate, the rate of Inheritance Tax payable is reduced from 40% to 36% on that part.

Other tax reliefs

There are other tax reliefs too.  There is the Cultural Gifts scheme which provides Income Tax and Capital Gains Tax relief on the gift of property to the nation.  There are Heritage Maintenance Funds which allow non-heritage funds to be sheltered from Inheritance Tax if used to maintain a heritage property.  And finally, there is Conditional Exemption which, as the name suggests, defers the payment on Inheritance Tax until an asset is sold if the conditions for exemption are met, typically associated with public access. 

Successive claims for Conditional Exemption can be made as art collections pass through generations meaning no Inheritance Tax is due if there is public access – think of real-life equivalents of Downton Abbey although this tax relief can be used for more modest items and collections.

If you are concerned about the taxation of art or antiques in your possession and how or if to keep, pass on or dispose of such assets, please get in touch to speak to one of our accountants.