Your estate is the product of your life’s work and includes the works you have produced as an artist. Careful estate planning is needed to make sure your artistic works are passed on efficiently and are not taxed unnecessarily.
Wills and Letters of Wishes
A Will and accompanying Letter of Wishes is essential if an artist wants to direct who should inherit their portfolio of works, how and when these assets should be distributed, and what provisions should be made for their management and preservation. There are many factors that an artist should consider: who do you trust to manage your portfolio? Would you prefer your works to be used primarily to generate money for your family? Would you prefer your works to be made accessible to the public or used for charitable purposes? Preparing a Will and Letter of Wishes allows these questions to be addressed, giving peace of mind that your estate will be administered in accordance with your wishes.
Capital taxes and tax exemptions
Gifts of art on death are subject to inheritance tax (“IHT”) at 40% subject to the IHT nil-rate band and any available exemptions and reliefs. Valuable works of art are also subject to capital gains tax (“CGT”) if gifted during lifetime.
Looking at IHT exemptions, a gift of art to a surviving UK domiciled spouse will not trigger an IHT charge, neither will a gift of art to charity. The Conditional Exemption scheme may also be available to provide an exemption from IHT and CGT if the recipient agrees to various conditions on their ownership, one of which is to provide public access to the art. The Acceptance in Lieu scheme is another way of using the art to reduce the IHT bill of the estate but requires the art to be gifted to an approved institution, such as a museum, for the public to enjoy.
Lifetime planning
A Lasting Power of Attorney allows an artist to delegate decision-making in relation to their art and personal affairs to trusted persons in the event of the artist’s incapacity. Bespoke provisions can be included in the LPA guiding the attorneys on the sale, exhibition or donation of works of art. The Cultural Gift Scheme provides a mechanism for an artist to donate a work of art to a cultural institution and in return for a reduction in the artist’s overall tax bill as a percentage of the item’s value can be offset against the artist’s income tax or CGT liability.
Jack Martin has a Diploma in Art Law from the Institute of Art & Law and is part of a group of specialists in our Private Client team who can advise on estate planning for heritage assets, art and collectibles.