Art and inheritance tax: Reforms and reliefs

The changes outlined in the Budget are due to come into effect from 6 April 2026, and in the form they are suggested, they will restrict BPR relief to 50% on BPR qualifying assets over £1 million. This means an effective IHT rate of 20% on any BPR qualifying assets which exceed £1 million in value.

Valuing art

Because of this proposed £1 million limitation, in some cases IHT will be newly payable as, currently, there is no restriction on the value of qualifying assets that benefit from 100% relief. Valuation of the art in these estates will be scrutinised the more closely, and getting it right will be more important to the estate than ever, because if tax is to be paid it must be charged on the right value.

The challenge specific to artists’ estates is that when an artist dies, they often own a large body of work. Unsold work is not easy to value and can pose a similar problem to that faced by farmers: the nature of the assets in the estate may make it appear as though there is a great deal of value on which tax should be charged, but the assets are far from liquid, may not be worth as much as they seem, and it may be very difficult to raise the funds to pay the tax.

The obvious approach to valuing art is by reference to prices achieved for similar work in the past. The prices that stand out are inevitably the highest: if an industrial landscape sold highly successfully at auction 25 years ago for £100,000, this is an unavoidable “comparable” when valuing the 50 similar-sized industrial landscapes left in the estate of the artist now she has died – even though these 50 unsold paintings do not share the circumstances of that one successful sale. To value them all on the basis of the obvious market evidence can be problematic.

The IHT value is the price which property might reasonably be expected to fetch if sold in the open market at the time of the IHT event (for example, the artist’s death). This value cannot be reduced to reflect the fact that in real life, flooding the market with 50 paintings in today’s circumstances will give very different results to the price achieved on a sale years ago of one painting in the particular circumstances of that day when the stars aligned for a very successful outcome at auction. HMRC stipulate that the IHT value attributed to, for example, the 50 paintings in our artist’s estate, must imagine that each painting is sold individually, on a good day, and it will be taxed on this basis even though in reality they cannot be sold all at once. Similar valuation challenges can be posed by the stock in the estate of an art dealer. Expert advice can help navigate these issues.

Reliefs that remain

The good news is that some IHT planning measures for protecting heritage property remain unchanged. Art in an estate which is deemed pre-eminent for its national, scientific, historic or artistic interest can still be passed down the generations free from IHT, or conditionally exempted, provided the owner can provide reasonable public access to it. This can apply to large collections of art in an estate if the collection taken as a whole is pre-eminent, even though the component works of art may not be. Often the challenge is providing reasonable public access, but imaginative solutions can often be found which allow the collection to be kept intact and shared with the public.

The best strategy for IHT planning in respect of an artist’s, collector’s or dealer’s estate will encompass a range of measures from BPR to conditional exemption to the extent they are available, and it may also be possible to offer important works of art in payment of the IHT that does arise, with a tax incentive for doing so. Art from Lucian Freud’s estate, including both the artist’s own work as well as his collection of paintings by Frank Auerbach, settled IHT on his death in a historic series of offers in lieu of tax. This “acceptance in lieu” scheme can offer a most financially beneficial solution although, as with conditional exemption, it is limited to pre-eminent objects.

How we can help

With the right advice from expert advisers familiar with the valuation and tax issues specific to art, artists, collectors and dealers can make the most of the tax planning opportunities available. But with new scrutiny on valuations and tighter thresholds, early and informed planning is more important than ever.

If you have art, a collection, or your own artistic works, in your estate and would like to look at IHT planning, please contact Clarissa Levi in our Art & Luxury team or your usual Wedlake Bell adviser.

This article is for general information only and does not seek to give legal advice or to be an exhaustive statement of the law. Specific advice should always be sought for individual cases.

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