This article centers around tax law in the United Kingdom, but some of it is applicable to the United States and other countries. Of course, selling-off valuable art pieces is an excellent option for heirs who owe estate taxes and inherit fine art. This was the case in the example below surrounding David Bowie’s estate, and this option is available in most countries.
In the UK, two other options are discussed regarding the payment of inheritance taxes with fine art (I love the way they call the “schemes”). These involve the donation of art by heirs and the donation of art by wealthy donors during their lifetimes. Interestingly enough, there are constraints on the amounts, which seem to be rather small. From the tone of this article, one would have to surmise that donating art to institutions is a fairly new concept in the UK.
As I discussed in a recent post on LinkedIn, a recent IRS decision has changed the landscape for donating art in the U.S..
The most important lesson that I can gleam regarding art and taxes is to “plan ahead.” Owners of fine art need to understand their options by consulting with a fine art tax and estate planning pro. A firm like Deloittte is the perfect recipe. Recently, they released their latest Art & Finance Report. it can be read in its entirety on the Ackerman’s Fine Art website:
December 3, 2016 By Martin Hughes
Culture vultures who invest in art not only have the enjoyment of their collections but a valuable tax offset gracing their homes. Depending on the pre-eminence of the work of art, paintings, sculpture and other works can reduce inheritance tax in the UK.
Taking the recent auction of rock star David Bowie’s art works which raised £33 million. The money goes back into his £60 million plus estate for the executors to pay off inheritance tax which is estimated at around £27 million if subject to tax in Britain.This leaves his family and loved ones to benefit from the full value of Bowie’s wealth.
Another option for families with celebrated art works is the Acceptance In Lieu scheme run by HM Revenue and Customs (HMRC) with the Arts Council. In 2015, the council had a £40 million offset agreed that allowed the protector of Britain’s art heritage to safeguard many valuable pieces for the nation.
Instead of paying inheritance tax bills, families offset the amount by offering the arts council paintings by Sir Edwin Landseer, John Constable, Sir Winston Churchill and William Holman Hunt. The paintings will go on display in public art galleries across the country.
“Less visible but just as significant is the impressive range of important historical and military archives which have come into public ownership,” said Arts Council England chairman Sir Peter Bazalgette.
“Families have handed over the archive of the Earls of Raglan, containing correspondence from Wellington following the battle of Waterloo; and the papers of Margaret Thatcher, which holds a personal memoir of the Falklands War and the final draft of her remarks in Downing Street when she became Prime Minister in 1979.”
Another similar scheme run by the arts council encourages wealthy donors to gift important works during their lifetimes. Bazalgette explained the council would like to take more acceptance in lieu art but is constrained by the £40 million budget.
“We would very much like to increase awareness of the schemes to encourage further gifts and offers to be made and would welcome any suggestions as to individuals, groups or organisations that would benefit from learning more about the options,” he said.