Don’t Lose Art

Author:Mr Howard Bilton
Profession:The Sovereign Group

The readers of this esteemed organ are a sophisticated bunch and its content focuses quite heavily on art, so I am assuming that most, like me, are collectors of art. If I'm correct in that assumption, then I hope an article dedicated to maximising the value of your art collection and maintaining it for future generations should be of more than passing interest.

Most Be Beyond readers will travel extensively and many will probably also own multiple homes. This necessarily makes life more complicated. There will be different considerations depending on where the art collector is domiciled and resident and on where their art is actually hanging. An article that tried to cover every different eventuality in every different country would, of course, end up being a very lengthy book. I don't wish to detain you that long so for the purposes of this article I will be writing with particular reference to UK law. The details will therefore be UK-specific but many of the issues will be universal.

The UK charges inheritance tax (IHT) at 40% - above the personal allowance of £325,000 - on all assets located in the UK, irrespective of the domicile or residence of the owner. Art that is hanging on a wall in the UK is deemed to be a UK-situated asset. Nasty. It is even worse for those individuals who are actually domiciled in the UK. They are subject to UK IHT on their worldwide assets so they would be liable to pay the 40% on the value of their art collection wherever it is located. And it could even be the case that the country where it is located also wants to charge IHT or estate duty on the same asset. An exception is made if an artwork is owned by a non-domiciled individual and is situated in the UK only for public display or cleaning and restoration, but this provision is unlikely to apply in most cases. With capital taxes it is by no means certain that a credit would be given for tax paid in one country against tax due in another so it is possible that two charges can occur on the same asset virtually wiping out its value to anybody other than the tax man. Not good.

Many long term residents of the UK may not have formally acquired a UK domicile but they may be "deemed domiciled" and therefore subject to UK IHT on their worldwide estates even though they still pay capital gains and income taxes according to the very generous rules applicable to non-UK domiciled persons. A deemed domicile will occur if a person has spent 17 out of the last 20 years...

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