Thursday 2 January 2014

Tax exempt artworks: a "racket in urgent need of reform"?

“A little known art and heritage tax exemption scheme designed to allow the British public access to a treasure trove of privately owned works has been described as a racket in urgent need of reform,” the Guardian has reported.

The “racket” in question is the “conditional exemption” scheme, which allows owners of certain cultural objects (those designated as being pre-eminent for their national, scientific, historic or artistic interest) exemption from inheritance and capital gains tax, so long as they abide by three conditions. Broadly, those conditions are to keep the object in the UK, to keep it in good physical condition, and (most controversially) to allow the public access to that object.

The Guardian reports that Rossetti's A Christmas Carol was
conditionally exempt prior to its sale at Sotheby's

The scheme’s aim is to ensure that a person inheriting such an object isn’t forced to sell it – possibly to a non-UK buyer – in order to pay the inheritance tax bill. It allows the individual to keep the object and gives the nation access to it at the same time, so everybody is meant to win.

But the Guardian writes that the scheme is “patchy at best”. Its research suggests that, in practice, gaining access to these objects can be tricky due to their existence being listed only in a “rarely publicised database” (to access the database click here) and due to owners who may demand identification prior to allowing viewings, offer inconvenient viewing dates, or simply fail to respond to viewing requests at all. In addition, the Guardian notes that the scheme has cost the UK “more than £1bn” in forgone tax over the past few decades.

“The scheme is not working,” shadow culture minister Helen Goodman is quoted as saying, with access obligations being “incredibly small” at “no more than 28 days per year”. She also believes that “there should be a requirement to lend works to public museums and galleries”.

However, the article doesn’t mention that 28 days’ access is normally a minimum (rather than a standard) condition, and - despite Goodman's comments that owners deliberately arrange awkward viewing times to keep visitors away - access during those days must be without the need for an appointment (although exemptions granted prior to1998 may still provide for access by prior appointment only).

Nor does it mention that in most cases HMRC already requires “willingness to make loans to public collections”, or that owners who fail to stick to the conditions are liable to lose the their exemption and pay their tax bill. (Contact details to alert HMRC about difficulties accessing objects can be found here.)

The Guardian’s investigation shows that the scheme is by no means a perfect system, and some may argue that taxpayers’ funds could be more efficiently employed. But the scheme does at least provide opportunities for owners to retain their important art or cultural objects while offering some degree of public access, as an alternative to such objects passing into the entirely private hands, whether in the UK or abroad, of those who can afford to buy them. And those rights of public access are rather broader than Goodman appears to think.

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