The Art Facts: Tax

There is no escape from the daily round of financial horror stories but the art market is seeing buoyant sales.

With a bearish stock market some other traditional investments, like art, are making a come back as investors look for other ways to invest funds.

Record prices for well known artists, such as David Hockney, Gustav Klimt and Lucien Freud , are being set on both sides of the Atlantic by both Christies and Sothebys.

Rising prices are often attributed to the super rich emerging from areas such as Russia, China and the Middle East but smaller investors have always enjoyed the possibility of making canny investments in West Country artists and other more affordable art.

However, Tamara Richardson of Foot Anstey Solicitors warns investors not to overlook the tax implications of making a good investment “Any increase in value is subject to Capital Gains Tax (CGT). If your painting is worth less than £6,000, then it may be disposed of tax free as a ‘personal belonging’ but above that figure, it falls into the CGT regime – and once over the £6,000 limit, the whole of the painting’s value will be considered, not just the excess.

“Before calculating your gain you can deduct costs of the sale such as advertising, auctioneer’s commission and some expenditure incurred during your ownership of the painting such as reframing or restoration.

“If you are married or in a civil partnership, any transfers of capital between you will not be a chargeable event. This means that if you give half of the painting to your spouse/civil partner you won’t pay CGT at that point.

“The gain won’t be wiped out, it will simply be transferred so that the CGT is a joint liability. The advantage of doing this is that both of your individual allowances will be available potentially doubling your tax savings when the painting is sold.

“Whatever you decide to do you must remember to keep good records, plan ahead and take expert advice when necessary, but most importantly, don’t let the tax issues cloud your enjoyment of the paintings you invest in.”

Tamara Richardson is a solicitor specialising in private client matters at Foot Anstey Solicitors and heads the firm’s Living Together team.

Published 28/07/2008. The author of this article is Tamara Richardson