Notes on Tax avoidance and US customs information
Did you know? there is a difference between Tax evasion and Tax avoidance. Tax avoidance i.e. Tax dodging is perfectly legal, it is simply a way of avoiding paying Tax that any good accountant would just have to reclaim for you at the end of the financial year.
U.S. clients, please scroll to the bottom of the page.
Here are some of the way tax is avoided when purchasing art.
A collector will usually have views on future of their art collection once they are no longer around. If the owner wishes for their art collection to remain in their family following their death, they will need to consider the tax implications of doing this. If a collector is domiciled in the UK or ‘deemed domiciled’ in the UK on the basis of having been UK resident for 15 out of the previous 20 tax years, they will be subject to IHT on their worldwide assets. This will include any personally held works of art. Broadly speaking, IHT is currently charged at 40% on any assets owned above the value of the ‘nil-rate band’ which is currently £325,000, subject to any available reliefs and exemptions. In that situation, an individual may consider making one or more lifetime gifts of their works of art to younger family members so as to reduce the potential IHT liability. A gift from one individual to another is treated as a ‘potentially exempt transfer’ for IHT purposes, meaning that the gift will be free from IHT provided that the donor (a) survives for seven years from the date of the gift and (b) does not ‘reserve a benefit’ in the work of art once the gift is made. If the donor dies within the seven year period, this will result in an IHT charge of up to 40% of the value of the work of art. The rate of IHT charged on the gift will reduce if the donor survives for three or more years from the date of the gift. For UK resident individuals, CGT will be due on a gift of a work of art if the value of the item has increased during the individual’s period of ownership (unless the individual can claim the remittance basis of taxation and the asset is kept outside the UK). The current rates of CGT are 10% (basic rate) and 20% (higher rate). Each individual has an annual CGT-free allowance, which is £6,000 in the 2023/24 tax year. An online check 'CGT- free allowance' can be made to check the current value. This allowance will reduce to £3,000 for any disposal made after 6 April 2024. Any CGT charge arising on the disposal of a work of art will be what is known as a ‘dry’ tax charge, as it will not result in the realisation of any cash which can be used to pay the tax.
If a private investor buys a piece of artwork or an antique, the purchase does not have to be reported to the Revenue for personal tax purposes but the costs should be noted for future reference. However, if the individual is VAT-registered, it must be reported for VAT purposes. Your client has to decide whether they are going to treat the asset as a business asset or as a private asset held outside the VAT system and inform HMRC.
Tax relief may be available on any expenditure related to the artwork and on insurance premiums but this depends on how the asset is used. Income tax relief for maintenance expenditure is only available when your client uses the item in a business where permissible deduction, relevant to such business use, may be available. Where they have no income tax relief, they should consider carefully whether the expenditure is classified as restoration, in which case they should retain details of the costs against possible future relief from capital gains tax. They can reclaim VAT on maintenance expenses, if and to the extent that it is used for a business purpose, for example, being on display in a house open to the public), whether or not it is a business asset.
Can I buy artwork through my Limited Company?
What do I need to know before I buy artwork through my company?
There’s nothing to stop your company purchasing a classic Monet or Rembrandt, or perhaps a more contemporary Abacussin.
However there are some important things to consider when it comes to the tax treatment.
To illustrate this, lets look at three scenarios…
Your company buys artwork which hangs in company premises
The question we’re looking at in this scenario is if you could get tax relief on your purchase, and the answer depends on the type of business your company is engaged in.
Hospitality
Say you’re operating a chain of restaurants or hotels and the art was placed in the dining area of the restaurant or in the guest hotel suites, Mr Tax man would let you claim the annual investment allowance on your purchase and deduct the full cost against your taxable profits.
This is because an element of your business is the creation of ‘atmosphere and ambiance’ – you want the interior of your restaurant to be inviting to your guests.
You’re not just selling food, you’re selling an experience, and the artwork acts as ‘apparatus’ which helps to achieve that.
Service Based
Now let’s say you’re an accountant, and you purchase artwork for your meeting room wall.
Yes, you may host client meetings in that room and you want their experience of coming to your office to be pleasant, however your main trade is not concerned with providing ‘atmosphere and ambiance’.
It’s concerned with providing excellent tax advice and business advisory services.
In this case, you could buy the artwork, you just wouldn’t be allowed any tax relief on it.
Your company buys artwork which hangs on your living room wall at home
This is a costly scenario for you personally.
Whilst your company has paid for the artwork with company funds, you are benefiting from the enjoyment of that artwork in your own home.
Your company has purchased an asset for you to use personally, much like they would be doing if they provided you with a company car.
In this case, you could be liable to a P11D benefit in kind, which would be calculated based on 20% of the cost to the company.
Of course if for example you were holding the artwork at your own home to avoid damage whilst restoration work was been carried out on your company this could not be considered using the art for personal use, it is simply saving on insurance fees that would otherwise need to be paid out to cover any potential damage to the works during your businesses renovation work.
Let’s look at an example
Say your company buys a lovely painting for £20,000 with the intention of hanging it in the office.
After 3 months you decide that it’s such a beautiful piece that you want to look at it all day every day, so you take it home.
Benefit in Kind
You have had this art hanging in your home for 9 out of 12 months of the tax year, so you are assessed to a benefit in kind of:
£20,000 x 20% x 9/12 = £3,000
You may be a 40% taxpayer, so that means a personal tax liability of £1,200.
Your company would also be required to pay Class 1A National Insurance of £414, which is at the current rate of 13.8%.
Your company would however receive tax relief on the Class 1A NICs paid of £414, as the provision of the artwork forms part of your remuneration package, much like salary costs.
You buy the artwork personally
This scenario is concerned with the tax payable when you eventually sell the artwork.
Example
Let’s use our £20,000 painting as above, but this time you bought it personally.
You decide to sell this a few months later for proceeds of £30,000, making a gain of £10,000.
Tax on Profit
You’ll be able to make use of your Capital Gains Tax Annual Exempt Amount which is currently £6,000, reducing your taxable gain down to £4,000.
Assuming you’re a higher rate tax payer, you’ll pay capital gains tax at 20%, which is £800
If you’re a basic rate taxpayer, you’ll pay capital gains tax at 10%, which is £400.
In this scenario the painting both cost and sold for more than £6,000, however there are special ‘chattel’ rules if either the cost or sales proceeds were below this amount.
If it was a company purchase how would tax be calculated on the profit?
Now, if you’d have held this in your company and sold it for the same, you’d have no annual exemption to offset and, depending on your company profits, you could be paying corporation tax on your gain of up to 26.5%, equating to £2,650.
Summary
So the take away from above is largely dependent on the nature of your business and what your intentions for the artwork are.
If you’re in the hospitality sector looking for up-market décor then a company purchase would make sense.
However if you’re looking to hold onto the art as an investment with some personal enjoyment, then buying it personally may be the way to go.
With regards to purchasing art whilst living in the USA
The instrument is known as 1031 exchanges and this is how they work. Many wealthy art collectors can, and do, save millions in taxes by essentially rolling over their profits from selling their collection pieces into buying more art. As the price of high-end artwork continues to rise, many collectors are taking advantage of this opportunity.
Instead of paying millions of taxes on their proceeds, collectors turn around and put the money towards adding to their collection. Why buy one Abacussin when it profits you more to buy two.
While some lawmakers frown on the practice, it is perfectly legal and allows art investors to defer taxes on their income from selling art. Many art collectors have found it to be an excellent way to extend the value of their art holdings, while at the same time avoiding letting millions get sucked away by the government.
With regard to purchasing and having your art piece shipped to the USA. As of August 2025 the advice from Sotheby's via the Art magazine and hyperluxmagazine.com is that the harmonized codes indicating that art is duty free when imported still stand and therefore no extra duty should be paid on any purchase as it is a purchase from an individual, is produced entirely in the UK and not from a large importing company.
These are just some of the ways to avoid unnecessary costs when buying an Abacussin. A good accountant would advise you of other means.