Capital Gains & Inheritance Tax for Art Collectors in 2024
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Key Takeaways
The UK’s 2024 budget has introduced significant changes to Capital Gains Tax, inheritance tax, and the non-dom tax regime, all of which will impact art collectors and high-net-worth families. With CGT rising to 24%, a four-year tax-free period for new non-doms, and a 40% inheritance tax on UK assets for long-term residents, collectors will need to consider careful planning to manage these costs and preserve their collections for future generations.
The UK’s recent budget announcement has introduced changes likely to impact art collectors—especially those planning to pass down collections across generations. To help unpack these changes, we sat down with Alice Martin, Partner at Charles Russell Speechlys, who specialises in tax advice and estate planning for high-net-worth international families.
From Capital Gains Tax (CGT) adjustments to modifications in inheritance tax, these changes are making waves. Here’s what you, as an art collector, need to know about the new tax landscape and how it may affect your art portfolio.
Inheritance Tax (IHT) Changes: The Larger Concern for Collectors
For art collectors, particularly those looking to pass on their collections, the impact of IHT may be the biggest consideration. Alice explains, “Inheritance tax remains one of the UK’s least popular taxes, especially for international families used to much lower or even zero inheritance tax rates.” For non-domiciled families with art collections held in UK properties, the new rules could be especially burdensome. The recent IHT changes could lead to a 40% tax rate on these collections when passing them to heirs.
This 40% tax on UK assets applies to many international families, even if they are not UK-resident. For families from jurisdictions with no or low inheritance tax, this can be a significant and unwelcome cost. "For international families, particularly those unfamiliar with the UK's inheritance tax landscape, this new policy can be a major shock," Alice remarks. "Many families are now seeking ways to preserve collections without a heavy tax burden.”
Capital Gains Tax (CGT): Changes and Implications
The budget introduced a higher CGT rate, raising it to 24%. Although some feared rates could jump as high as 39%, Alice notes that “pitching CGT at 24% was likely a strategic decision to avoid discouraging transactions that might stimulate revenue.” The increase, however, means that art collectors transferring artwork within families may face higher CGT charges on such transactions.
CGT applies not only to sales but also to the gifting of assets, which could complicate legacy planning for families with valuable art collections. For example, families who want to pass down artworks as part of their legacy will now need to account for these added costs. This is particularly relevant to collectors in the blue-chip prints market, where liquidity and the frequency of transactions mean that many collectors may encounter CGT on a more regular basis.
The New “Four-Year” Regime for Non-Doms
For many years, the remittance basis provided significant tax advantages for international families living in the UK. Now, however, a “four-year” regime replaces it, allowing non-domiciled individuals to live in the UK and bring foreign income or gains tax-free for only their first four years. According to Alice, “the new four-year regime is part of the government’s effort to attract international capital, but the limited duration may not be enough to retain families looking for long-term residency.” She adds that, “once an individual surpasses ten years of UK residency, worldwide inheritance tax applies, creating a deterrent for families considering a longer-term stay.”
Under this regime, after four years, income and gains become taxable on a worldwide basis. Alice notes that families may find themselves reassessing their residency plans as they approach this threshold. The risk of incurring UK inheritance tax (IHT) on global assets after ten years may encourage international families to reconsider remaining in the UK, especially as other countries offer more favourable long-term options.
Estate Planning Strategies for Art Collectors
While the tax landscape has grown more complex, Alice suggests several estate planning strategies that could help families preserve their collections. One such tactic is transitional “rebasing” of non-UK assets, where qualifying individuals can limit CGT to gains accrued only from 2017 onward, rather than on the full gain since acquisition. This rebasing only applies to non-UK assets and to individuals who fit specific criteria, but for those who qualify, it could reduce CGT significantly.
Another key strategy involves placing art collections in trusts. “Trust structures can be an effective means to preserve collections across generations,” Alice says, though she cautions that the process can be complex. “Simply placing art in trust isn’t always tax-effective; it’s crucial to adhere to specific guidelines, especially for collections held in the UK.” Families may also consider including art advisors and next-generation family members in trust decision-making, which can create a legacy and involve heirs in the collection’s future.
For those inheriting assets, Alice notes the continued use of deeds of variation as an efficient tax strategy. "A deed of variation allows heirs to redirect inherited assets to the next generation without incurring immediate tax charges,” she explains. This option is particularly useful if a collector inherits a piece they plan to pass on; it can effectively prevent inheritance tax from being applied twice to the same asset.
The Changing Art Market Landscape
For collectors in the UK, the implications of these changes go beyond just tax costs. The structure of the four-year regime, combined with the ten-year IHT window, may shape where and how collectors invest in and hold art. “For many families who play a key role in the art market ecosystem, these changes are causing them to look at other jurisdictions,” Alice explains. “It’s increasingly common for clients to consider places like Switzerland and Italy, which offer favourable long-term residency arrangements.”
The UK’s four-year regime and other new rules might impact the property and art markets as a whole, especially if families choose to relocate. Alice’s clients are watching tax policies carefully to determine how best to structure their assets. “For collectors who might have previously bought art in London, the new rules could prompt a reassessment, especially if they’re weighing the implications of keeping assets in the UK over the long term.”
Future Considerations for Art Collectors
For families with valuable collections, proactive planning with estate and tax advisors will be essential under the new rules. Collectors should evaluate whether holding and passing down collections in the UK remains feasible under the evolving tax regime. As Alice advises, “art is often a personal legacy as much as a financial asset; families should seek advice to ensure they’re preserving both.” The new tax landscape is complex, and having tailored guidance will help families manage their collections without unnecessary tax burdens.
These changes highlight the importance of estate planning for art collectors. For many families, the choice of location and the structure of asset holdings will be crucial in navigating the next chapter of art ownership in the UK. Alice encourages collectors to explore all available legal and financial tools, whether through trust structures, deeds of variation, or even considering other residency options, to ensure that their collections can be cherished and passed down as intended.
The new tax landscape is challenging for art collectors, particularly those with multi-generational succession plans. Although there are strategic ways to mitigate tax impacts, such as using trusts, deeds of variation, and transitional rebasing, these approaches require specialised guidance. As the UK repositions itself with these policies, some international families may choose to reevaluate their ties to London, while others will adapt their estate planning strategies to preserve both the financial and sentimental value of their collections. For collectors, proactive planning with expert advisors will be essential to navigating this new chapter successfully.
What is mentioned within the podcast recording and this write-up does not constitute tax or legal advice.
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