The Tax Laws And Art Collecting
As discussed in related article, ‘Art for Investment’ artworks sold are subject to Capital gains tax if you make over £6,000 within one tax year. For small scale art dealers it is worth taking this into consideration. For bigger dealers paying tax on art sales will be unavoidable and you may wish to make tax breaks elsewhere by offsetting your contributions against charitable donations, or by employing an accountant to make best use of your money in any number of other possible ways (including investing in tax free savings : ‘ISA’s’ or ‘TESSA’s’).
For now, the main direct tax break associated with art collecting and investing in art comes in the form of the ‘Acceptance in Lieu’ (A.I.L.) scheme which allows an art collector to offset existence inheritance tax bills against the value of an artwork, provided that artwork is donated to the nation.
Acceptance in Lieu Explained
Those liable to inheritance tax laws can benefit from A.I.L. as they not only get the full price of their art collection as a reduction in inheritance tax due, but also have the benefit of no longer having to pay that tax in full. If they had otherwise sold to auction they would lose some of the value of the artwork in auctioneers fees, would pay tax on the sale, and would also still have to pay their full inheritance tax. The benefits are clear, and may only fall short in light of the possibility that the artwork may otherwise have earned significantly over the odds at auction. However it would have to make significantly more than its projected value to make auction house selling a more financially viable option. Moreover, there is no guarantee that artworks will appear in the public eye when sold at auction, whereas A.I.L. guarantees that they will be looked after well and used for the public benefit.
All claimed to A.I.L. will be assessed by a special board in conjunction the Ministry of Culture, Media and Sport and only granted if the artwork or artefact offered is deemed to be of ‘pre-eminent value’. Essentially, the government will seek to guarantee that the public will get good value for what is essentially an investment in art on behalf of the tax paying public, who will make up for the shortfall in tax, insofar as real tax (in terms of money) is not paid by the art collector who uses A.I.L. to offset tax contributions.
The nature of A.I.L. can be criticised on account of the fact that it benefits the wealthy, who may be able to avoid paying significant amounts of tax, that they could possibly afford in any case, whilst it offers little opportunity for investing in art for the poor or even the mid-range art collector who will have little of cultural –pre-eminence’ to offer.
Offers made under the A.I.L scheme can be made with the proviso that your artwork or artefact is donated to a specific gallery or location. Otherwise works will be allocated to the greater public good, in order to ensure maximum returns for the tax payer.
For more information on Acceptance in Lieu contact the Capital Taxes Manager on: 020 7273 1456.