Omai! Tax exempt artwork
A recent decision by the Court of Appeal has ruled that the painting Portrait of Omai (1775) by Sir Joshua Reynolds should be classified for the purposes of capital gains tax as "plant and machinery" and therefore exempt from tax following its sale in 2001.
The painting was purchased by the Duke of Norfolk following its first exhibition at the Royal Academy in 1776. It remained in Castle Howard until 2001, when it was sold at auction for a record-breaking £9.4 million.
The executors of the estate of Lord Howard argued that the painting was a "wasting asset" for the purposes of capital gains tax because it had been included for exhibition in the part of Castle Howard that was open to the public, during Lord Howard's lifetime and following his death in 1984.
Castle Howard has been owned since 1950 by Castle Howard Estate Limited. The company runs the house, and as part of its trade, opens part of the house and the gardens to the public. It is also part of the company's trade to exhibit the works of art within the house to the public. While exhibiting the paintings, the company bore the cost of the insurance, maintenance, restoration and security of the works.
The court decided that the painting fell within the definition of "plant", as it could be classified as "goods and chattels…which [a business man] keeps for permanent employment in his business". Once it was determined that the painting was "plant", the relevant legislation automatically provided that the painting was a "wasting asset", regardless of the life span or value of the item itself, and therefore exempt from capital gains tax on its sale.
The circumstances surrounding the use and sale of Portrait of Omai indicate that there are considerations to take in to account when deciding how to structure art holdings:
- Who or which entity holds the assets?
- Are the artworks integral to the company's trade, for example are they on exhibit?
- Who bears the costs of upkeep?
To discuss the implications of this case for your collection, please contact:
Metal Thefts - The Threat to Heritage
What has been happening?
Scrap metal theft has been a blight on the UK economy for a number of years and is estimated to cost the country £770 million each year. The number of thefts has doubled in the past five years as global metal prices continue to rise. Police have discovered ladders, tools and vans specially adapted for stealing metal items demonstrating the lengths thieves will go to, to cash in on this increasingly lucrative trade. The epidemic impacts on a wide range of victims from rail and electricity networks to churches and private homes, some often becoming repeat victims.
Artworks are now increasingly becoming the target. In December 2011 thieves stole Barbara Hepworth’s seven foot high sculpture Two Forms from Dulwich Park, Southwark. While the sculpture was insured for £500,000 experts say that if the work is melted down, it may fetch a mere £750. Southwark suffered another loss in 2011 when a bronze statue of former MP Alfred Salter was stolen from Cherry Garden Pier in Bermondsey. Similarly, in 2005 Henry Moore’s Reclining Figure was snatched from the grounds of the Henry Moore Foundation in Hertfordshire. Police later reported that the sculpture worth £3 million was melted down and sold off for just £1,500.
For collectors and galleries this growing trend is developing into a real concern. If you have works that may be at risk you need to consider what safeguards you can put in place.
What measures are the government taking?
Many have claimed that existing legislation in the form of the 1964 Scrap Dealers Act is out of date and insufficient. Amid growing calls for reform, on 26th January 2012 the home office announced their plan to amend the Legal Aid, Sentencing and Punishment of Offenders Bill. The Home Secretary Theresa May stated that the Government will create a new criminal offence to prohibit cash payments to purchase scrap metal and increase the fines for all offences under the existing 1964 Act. The Government may also introduce measures requiring all metal dealers to maintain records of all their sales and provide proof of identity when carrying out transactions.
The police are also cracking down on the problem. Scotland Yard has created its first unit devoted to combating metal theft based in Bexley, South East London, one of the most badly affected areas. Meanwhile, a pilot scheme named Operation Tornado has begun in the North East of England. This 6 month project will require those selling scrap metal to provide photographic proof of identity.
How can you protect your property?
While the government and police are mobilising on this specific trend, owners of metal belongings- be they church roofs, artworks or gates of family homes should be looking to take preventative steps before theft occurs as theft frequently ends in destruction of the item taken.
We recommend the following precautions:
- Maintain a detailed inventory of your property including photographs;
- Prevent easy access by securely fencing your property and blocking vehicular access, without vehicles thieves cannot easily remove heavy and cumbersome items;
- Store items such as ladders and cutting machinery in secure locations;
- Consider installing security systems such as Closed Circuit Television or battery operated detector systems linked to a rapid response service;
- Avoid placing valuable sculptures on view in grounds and consider moving vulnerable pieces from isolated locations; and
- Consider replacing valuable works on display with replicas and keep original works in storage.
For advice on how to safeguard your collection contact Karen Sanig or Amanda Gray .
The legacy of the Accidia Foundation case - Art Dealer Commission Structure Acceptable Only with the Fully Informed Prior Consent of the Principal
The obligations of art dealers and intermediaries were put under the microscope last year by a judgment which makes obtaining the fully informed consent and authority of the principal vital in protecting the commission structure and ensuring the transaction is lawful. The effect of this judgment still ricochets throughout the art industry.
The case of Accidia Foundation v Simon C Dickinson Ltd  EWHC 3058 (Ch) was a case brought by Accidia, the owner of a valuable drawing attributed to Leonardo da Vinci, against Dickinson, an art dealer who found the buyer for that drawing. In the judge’s view, there were actually three vital players, but – inexplicably - only two were joined to the litigation. The third was Luxembourg, the third party agent who provided the common thread between claimant and defendant, having first been engaged by Accidia to sell the painting and then in turn engaging Dickinson.
Dickinson agreed a sale price with the buyer of US$7 million, taking US$1 million commission directly and only revealing a
net return price of US$6 million to Luxembourg. Although the judge found that Luxembourg must have known Dickinson would take a commission on top of the US$6 million being returned (as she did not share her commission), she agreed the arrangement between themselves and did not tell Accidia about any arrangement. Consequently, Accidia believed the painting had sold for their suggested price of US$5.5 million, added to which Luxembourg invoiced for her US$500,000 commission. Six months after the purchase, the buyer raised concerns over the drawing's authenticity and the actual sale price - which up to this point had been known only to the buyer and Dickinson - was revealed to Accidia.
The judge held that the art dealer was acting as agent for the undisclosed principal, Accidia, and not for the buyer. He also held that Luxembourg, the third party agent, did not have actual or implied authority from Accidia to instruct Dickinson.
The art dealer’s commission arrangement had been fixed by Dickinson himself, without seeking or obtaining consent from either buyer or seller. Dickinson’s submission that this was
common international art market practice was not accepted by the judge, who was not satisfied that any custom or practice existed whereby art dealers agree a return price without informing the principle or agent of the ultimate sale price or level of commission taken. The judge went further, holding that not only was this contractual practice not customary but in fact was
unlawful and unreasonable unless the fully informed consent of the seller had been obtained or the dealer accounted to the principal for the
secret profit secured.
Dickinson would have been well advised, the judge said, to ensure that the ultimate seller understood the net return price arrangement that it had agreed with Luxembourg. The fact that he did not left him
personally exposed, though he did not find that Dickinson had acted surreptitiously or dishonestly. While Dickinson should have done more to ensure that Accidia understood the arrangement, Luxembourg was also at fault for failing to properly report to Accidia.
The judge considered that it would be inequitable for Accidia to recover the whole US$1 million from Dickinson, but that it would also be unjust to allow Dickinson to keep it.
Based on the evidence, the judge would have expected Accidia to agree to pay 10% of gross sale price in the present market. That 10% of US$7 million would have been split between Luxembourg and Dickinson, and as the former was paid US$500,000, Dickinson’s
just allowance was US$200,000. Accordingly, Dickinson was ordered to reimburse the difference to Accidia, namely US$800,000 less restoration costs of £2,500 which Accidia would have been obliged to pay), plus compound interest from the date of sale.
This litigation, and the unpicking of the commission arrangements of the art dealer, could have been prevented had there been transparent, clear agreements between the parties. Coming on board as a dealer or intermediary, it will be vital to interrogate any existing contracts between the parties and ensure that your position is robustly protected by appropriate legal agreements reflecting the extent of your authority to act and your commission structure.
You need to consider your position in any transaction:
- Are you dealing direct with the principal or are there a number of intermediary parties?
- What commission arrangement is in place and is the principal aware of the arrangement?
- Who will be paying your commission?
- Are you protected?
If you are an art dealer or intermediary, please contact Karen Sanig or Amanda Gray to discuss how to protect your position and safeguard your business.
Gifts of Pre-eminent Objects and Works of Art to the Nation - News for Collectors
At Budget 2011, the government announced its plan to boost philanthropy through a new scheme aimed at encouraging individuals to donate pre-eminent objects or works of art to the nation. This will be of interest to those who hold works of art or antiques.
When is it happening?
On 29 June 2011 the government launched a consultation on Gifts of Pre-eminent Objects and Works of Art to the Nation. The consultation period ended on the 21 September 2011. Following this, draft clauses that implement the new scheme were included in the Draft Finance Bill 2012. The scheme is expected to come into effect in April 2012.
What is happening?
The Gifts to the Nation scheme provides a reduction in income tax, capital gains tax, or corporation tax where individuals or corporations donate qualifying gifts of pre-eminent property to be held for the benefit of the public or the nation. A gift that qualifies for the tax reduction must be registered and accepted under the scheme set up by the Secretary of State. Jointly owned property is not eligible for the scheme. Trusts, trustees and personal representatives are also not eligible to apply.
How would the scheme work?
- If an individual makes a qualifying gift, then a proportion of that individual's tax liability for the relevant year is deemed to have been paid, thus reducing the individual's tax liability for a relevant tax year. The tax reduction available for an individual making a qualifying gift is equal to 30% of the value of the qualifying gift. The individual can elect whether to apply the reduction to income tax or capital gains tax. The individual can also choose whether to apply the tax reduction in the year the offer is registered or spread the tax reduction across the succeeding four tax years. The individual must decide during the year that the offer is made exactly how he/she plans to allocate the tax reduction in advance of each relevant tax year- therefore one cannot say that one plans to distribute £400,000 of the tax reduction over 5 years without specifying exactly how much will be used in each year.
- If a corporation makes a qualifying gift, the tax reduction available is 20% of the value of the property forming the gift. This must be applied in the year the donation is registered.
- Such donations will also be exempt from capital gains tax and corporation tax.
What is a pre-eminent gift?
- The definition is tight in scope and is set out at paragraph 16 of schedule 1 of the Draft Finance Bill. It includes pictures, prints, books, manuscripts, works of art, scientific objects or any other thing that the relevant minister is satisfied is pre-eminent for its national, scientific, historic or artistic interest. This definition is intended to reflect the definition which applies for the Acceptance in Lieu from Inheritance Tax Scheme (s230 Inheritance Act 1984) but it excludes land and buildings. The decision as to what falls into this definition will initially rest with a Panel of experts appointed by the Government.
- If the Panel believes that the object meets the requirements it will recommend the application to the relevant minister. Generally, the relevant minister will be the Secretary of State for Culture, Olympics, Media and Sport. However if an object has a strong tie to Scotland, Northern Ireland or Wales the Minister of that country will be involved in the decision.
What institutions can accept an object under the scheme?
- The Department for Culture Media and Sport defines an eligible institution as any museum, art gallery, library or similar institution having as its purpose or one of its purposes the preservation for the public benefit of a collection of historic, artistic or scientific interest. Donors may suggest an institution of their choice provided it meets the approval of the Panel. The transfer of the object to the Institution will be subject to the Institution agreeing to certain conditions, including agreeing to insure the work, to maintain the work in good condition and not to sell the work without the consent of the relevant minister.
How will an object be valued?
- Applicants will provide information regarding the object's estimated value. The aim is to ascertain what price the object could reasonably be expected to fetch in an open and unrestricted market. The applicant should provide valuations supported by substantiating evidence.
- The gifts of pre-eminent objects scheme coupled with the acceptance in lieu scheme will exist under a cap of £30 million a year for both schemes. Therefore the annual reduction in tax liability accepted under both schemes cannot exceed £30 million in each tax year.
How does the scheme change the status quo?
- There is presently no similar tax relief available for lifetime gifts of pre-eminent objects to the nation. The Inheritance Tax Acceptance in Lieu scheme applies to gifts of pre-eminent objects from estates, and operates in respect of Inheritance Tax only. There is also no philanthropic element to the Acceptance in Lieu scheme.
How has the government integrated suggestions produced during the Consultation Period into the Draft Finance Bill?
- Many organisations criticised the proposal that the Pre-eminent Gifts scheme would operate under the same £20 million budget as the existing Acceptance in Lieu of Inheritance Tax scheme. The government has responded to this complaint by increasing the combined annual cap for the two schemes by 50% to £30 million.
- The initial proposal also suggested that individuals would only be entitled to a tax reduction equal to 25% of the donated object's value. Critics felt that this was not a sufficient enough tax incentive and accordingly the government has increased the tax reduction to 30% of the donated object’s value. In addition, having suggested that the scheme would be only be open to individuals the government are now allowing corporate donors to take advantage of the scheme.
Only time will tell if the new scheme succeeds in meeting the Government’s aim to encourage philanthropy and support charitable giving. The Government has emphasised that this is only the beginning and it will continue to monitor the scheme to ensure its success.
If you are interested in taking advantage of the scheme contact Karen Sanig or Amanda Gray.
Everything and Nothing
All rights reserved Timothy Hon Hung Lee
Following on from the success of ‘Visitations’ at 9 Club Row Project, Timothy Lee’s exhibition ‘Nihilphilia’ is soon to open at the Cock ‘n’ Bull Gallery at Tramshed in Shoreditch.
Since graduating from Leeds University, Lee has already exhibited widely in London, Singapore, Toronto, and Amsterdam and gained his first US solo show in New York’s Gallery Nine 5. This new series of works, entitled ‘Nihilphilia’ – literally translated as “a love of nothing” – distorts the traditional historic portraiture and still life. Lee has made a series of new paintings that further explore his interest in combining intense themes with fragile materials.
At first glance, the subjects of Lee’s highly contrasting, almost monochrome paintings appear to be disfigured portraits and delicately decaying still lifes. However, each composition is in fact constructed from memory alone, and attempts to create a balance between extreme polarities such as life and death, beauty and decay. Prior to the opening of the exhibition we asked Timothy about his practice and these series of works:
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Willie Christie: Limited Edition Collection
The relaxing and intimate ambience created by low lighting, comfortable leather sofas and private rooms at Eight Club – a private member's club situated in the heart of the City – make it an ideal venue for Willie Christie’s unseen, seminal photographs by British style icons. Guest blogger Elvira Patruno, MvF Managing Curator, gives us an insider’s perspective.
Limited Edition Collection showcases a selection of groundbreaking works across fashion, music and film during Christie’s decade as a fashion photographer. A tribute to polished 70s romanticism and emboldened 80s glamour, the show includes, among others, intimate portraits of Christie’s former spouse and one of his favourite subjects – Grace Coddington.
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A blog for art-lovers and adventurers, fashionistas and culture vultures, who believe in fair play, fair trade and fair travel.
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A glass act
Persian Ceiling, Dale Chihuly
Courtesy of Halycon Gallery
If you have not caught this exhibition already, do not miss Halcyon's show of Dale Chihuly's latest work on display at both 144-146 New Bond Street and at Harrods, where a chandelier is exhibited. Chihuly's work never fails to grab you with his use of colour, form and dynamic use of glass. For those familiar or new to his work, Halcyon's exhibition will not disappoint.
The exhibitions is full of firsts – the 'Persian Pergola Ceiling' (the first time that this work has been shown in a gallery setting) is your first encounter in the exhibition, under which you look up into a canopy of colour, light and form. In addition, six new chandeliers made for the exhibition can be seen in various installations including 'The Cranberry Spire Chandelier', 'The Amethyst Icicle Tower' and the 'Aero Blue Chandelier'. This is also the first exhibition in which the artist has displayed neon artworks in the UK, here displaying the 2013 works, "Sapphire Neon Tumbleweeds".
Chihuly is credited with revolutionising the Studio Glass movement and elevating the perception of the glass medium from the realm of craft to fine art. He is renowned for his ambitious architectural installations around the world, in historic cities, museums and gardens. He has collaborated with the greatest American and Italian glass artists and has provided continued education for young artists, many of whom have become masters themselves. His vision has led to installations on a scale unmatched by any other glass artist. Major exhibitions include Chihuly Over Venice (1995-96), Chihuly in the Light of Jerusalem (1999), Garden Cycle (2001 to present), de Young Museum in San Francisco (2008), the Museum of Fine Arts, Boston (2011) and the Montreal Museum of Fine Arts, Montreal, Canada (2013.) Chihuly Garden and Glass, a long-term exhibition, opened at the Seattle Centre in 2012.
In London, Dale Chihuly is perhaps best known for his monumental V&A Chandelier, which has been seen by millions since its installation in the main entrance of the historic museum in 2001. A major exhibition of Chihuly’s work Chihuly at the V&A was held at the Victoria and Albert Museum in the same year. This was followed by a large scale garden exhibition at the Royal Botanic Gardens, Kew in 2005. Gardens of Glass: Chihuly at Kew was seen by more than 850,000 people. Visitors to Claridge’s are also able to view a Chihuly Chandelier suspended from the ceiling of the Foyer area.