Up to date valuations of works of art are important in the context of estate planning. They are also important for the purposes of protecting works of art with proper insurance

Inaccurate valuations, whether excessively high or excessively low, may create problems in the future. Written valuations for most purposes can be arranged by Cochrane Adams Fine Art Agents.


On a person’s death he is deemed to make a transfer of all his property (including cash) on which, subject to any available reliefs or exemptions, there is an IHT charge. The charge is calculated by reference to the open market values at the date of death of all the assets in his estate. HMRC treat prices realised at public auctions as being suitable evidence of open market values, but such sales are by no means the only evidence available or accepted by HMRC.

A valuation during lifetime showing the open market value will give an indication of the potential tax liability on death, and can be used for estate planning purposes. This will have to be updated for probate purposes on death.

If, however, no valuation has been prepared during lifetime, a valuation will be necessary reflecting the open market values as at the date of death.

It may also be helpful to obtain valuations when lifetime gifts are made, even if no IHT is immediately payable. For example, if the donor dies within 7 years of making a PET, tax would be chargeable in relation to the open market value of the asset when the PET was made.


If there is a transfer or disposal of chattels during lifetime, it may be necessary to obtain a valuation for CGT purposes in addition to the current open market values for IHT purposes.



Often the value placed on an item for insurance purposes is the retail replacement value – this is usually the case when chattels are in a trust. This tends to be higher than auction levels of value and can be a multiple of these levels. However, it may be that an owner decides to insure at a different level, agreed with his broker.  There are many types of cover available with different costs and risks to the owner.


Import & Value Added Tax


Value Added Tax (VAT) for the most part is a tax on the supply of goods and services by way of business. It is also a tax on the importation of goods and services into the United Kingdom.


Any supply is taxable if made in the UK by a person registered or liable to be registered for VAT in the course or furtherance of a business carried on by him, including the sale of an asset of the business, unless it is specifically exempt. The supplier is liable to pay the VAT to HM Customs and Excise and will normally add it to the price he charges.

However, the sale of business assets is deemed to be such a supply for VAT purposes when made in the UK. A gift of a business asset or its appropriation to private use can be subject to VAT, which is normally computed on the cost of the asset if any.

It should be noted that where the business consists of opening a house to the public, it is not only the sale of admission tickets and refreshments etc. that are taxable supplies, but also the sale of the pictures, furniture and furnishings that adorn the house and are treated as assets of the business. These supplies (sales in this case) will not be taxable if they are subject to a heritage sale (see Heritage Sales), neither will VAT be chargeable on disposals that continue to be conditionally exempt. The charge to VAT, in these circumstances, may also not apply if the work of art in question is removed from the business for a period of at least one year before sale on the open market, or is not owned by the person carrying on the business. The removal from the business may give rise to a charge to VAT on the cost of the asset. If a work of art was acquired through inheritance, the ‘cost’ is nil.

Who pays VAT?

In general, there is a legal requirement to register for VAT within a very short time should your ‘taxable supplies’ exceed the prescribed limits but sales of capital assets of your business are ignored in applying the limits. There are severe penalties for not registering on time.

Rate of Tax

In the tax year 2014-2015, there is a standard rate of tax of 20% and a reduced rate of 5%. However, some taxable supplies are zero rated, the consequence of which is that no tax is payable on the supply and the supplier will be able to recover any tax paid by him on the supply of goods or services to him to the extent that they are used to make the taxable supply.

Used Goods Scheme

This scheme was introduced in order to avoid the distortions in the second-hand value of certain goods which might arise because such goods, having already borne VAT on a sale to a private individual who cannot recover it, are often sold by the private individual to a dealer, and a charge to tax would arise on a subsequent sale by a dealer or other business without any credit for the VAT already borne.

The used goods schemes broadly provide that dealers and other businesses may, subject to certain conditions, account for tax by reference to the gross profit margin rather than the full sale price, and this VAT is not recoverable by the purchaser even if it is a fully taxable business. There are several categories of second-hand goods within these schemes, including antiques, scientific collections and works of art. These are European Community proposals which may change the rules.

Imported Goods

VAT is charged at 20% when goods are imported into the UK from outside the EU. Relief is available for original works of art and antiques more than 100 years old; VAT is charged at 5% in these cases. Different views are held as to what is or what is not an ‘original work of art’, and it is wise to clarify this before importation. In the case of original works of art, the item must not have come from the original creator or the creator’s estate since 1973. The 5% VAT for imported works of art may be avoided if they are brought in for a limited period with a view to sell, display in public such as at a museum, or to test or subject them to examination.

There are specific exemptions to VAT on importation from outside the EU. For example, Notice 368 allows for household goods imported from outside the EU by an EU resident provided they inherit those goods under a Will and they import within 2 years of the estate being wound up.


Auction houses sell items at the hammer price and then charge a buyers premium as a percentage of the hammer price. VAT may be charged on both or only one depending on the lot in question.

Where the Auctioneers Margin scheme applies VAT will normally be charged on the buyers premium at 20% but not on the hammer price. Other lots will attract VAT at 20% on both the hammer price and buyers premium.

Lots imported from within the EU are not subject to VAT when imported. Where a lot has been imported from outside the EU on a temporary importation the buyer will be treated as the importer. Before 1st September 2006, the hammer price and buyers premium were charged to VAT at 5% by the auction house. After this date, the hammer price is charged to 5% VAT and the buyers premium at 20%.

There are complicated rules for the cancellation or refunding of VAT, for instance, if the buyer is registered for VAT within the EU or on exports from the EU.


Export Of Works Of Art From The UK

The application of an export licence is referred to an appropriate expert from one of the national galleries or museums. If the expert objects to the export of the object on the basis of the “Waverley” criteria (see paragraph 6 below) then the case will be remitted to the Reviewing Committee on the Export of Works of Art and if the objection to a licence is sustained a recommendation is made to the Minister for the Arts that a licence should be withheld in order to give a UK purchaser the chance to buy the item at the specified price. This is known as the ‘stop procedure’.

In determining whether an object is of national importance as to call for the deferral of the application for a licence to export, the Reviewing Committee are guided by criteria contained in the Waverley Committee Report.

The Waverley criteria are:

a) Is the object so closely associated with our history and national life that its departure would be a misfortune?

b) Is the object of outstanding aesthetic importance?

c) Is the object of outstanding significance for the study of some particular branch, learning or history

d) Is the collection to which the item belongs so closely connected with our history and national life or of such outstanding significance to the study of some particular branch of art, learning or history that its departure or dispersal would be a misfortune?

Up until recently, when the Reviewing Committee have decided that an item falIs within the Waverley criteria, the application for an export licence has been deferred for a short period, usually up to six months. The purpose of this deferral has been to enable a public institution in the UK to acquire it at a fair price as recommended by the Reviewing Committee. The practice hitherto has been that no such offer has been received, the licence to export has been granted. If, however, the owner has made it clear that he would not accept such an offer from public institution were it to be made, the licence has been refused. The refusal was accompanied by advice to the owner that no further applications by him to export would be considered for 10 years. This practice came to be known as an ‘indefinite stop’.

However, the British Government were advised that the refusal to consider any further applications was unlawful. A would-be exporter had a right to have any application considered. In 1988 the ‘indefinite stop’ procedure was therefore terminated. The result was that the owners of an object for which an export licence had been refused could reapply again and again. To meet the problems to which this gave rise, the Government decided in March, 1990 that repeat applications from owners would be dealt with as follows: if there was no change in the heritage status of the object a licence would normally be refused without period of deferral; this would be so even if the price of the object was higher than that at the time of the original application.

While the Waverley criteria remain a fair guide to a decision on the national importance of a work of art, the operation of the procedure has become less than satisfactory largely as a result of the great rise in the value of works of art. This has made it more difficult than ever for public institutions to find the money to acquire them. There is a likelihood therefore that an increasing number of important works of art will go abroad.

This is the background to a decision in 1990 by Nicholas Ridley, the then Minister of State for Trade and Industry, that if an item is found to be of Waverley standard and a licence decision has been deferred for a given length of time, then offers to purchase may be made from any source, public or private, the fair market price being one recommended by the Reviewing Committee but generally that stated by the would-be exporter. It would be for the owner to decide whether to accept such an offer from a private buyer. Indeed, there could be several private bids and if, for the sake of argument, the owner was not prepared to accept any of them, the Secretary of State would have to decide whether or not to grant an export licence. (He would have no choice between competing bids). He would probably decide against granting a licence in the case of a refusal of a fair private bid whereas previously a licence was granted unless there was a fair bid from a public institution.


Droit De Suite – Artist’s Resale Rights

Although not strictly a tax, Droit de Suite is, in effect, a new Intellectual Property right, which became law in this country on 14th February 2006.

Royalties are generally payable on secondary sales – no royalty is due on the first sale by the artist and on private secondary sales. Artists may not waive these rights. Although a number parties to a sale are liable for the royalty, actual payment may be negotiated between them – frequently the cost is passed on to the purchaser.

Royalties are payable to living EU artists (and others with reciprocal rights) generally sold with in the EU, although sales outside the EU might still be caught by this levy. Royalties will also be payable for the benefit of the heirs of artist’s estates for a period of seventy years following deaths after January 2012.