Tax planning with antiques and works of art

If you are in the fortunate position to own valuable antiques, works of art, sculptures or other valuable personal possessions, it may be possible to consider using such items for your Inheritance Tax planning strategies.

If you are prepared to consider making a gift of such items, and to handover the actual ownership to another, transferring possession can be quite straight forward.However, if you wish to make a gift of the item but continue to benefit from it then at this time matters might get more difficult. Many will be familiar with the “gift with reservation of benefit” (GWRB) rules that prevent an individual from “having your cake and eating it!”

The GWRB rules are designed to prevent an individual from making a gift, but continuing to enjoy the benefit of that item, such that it was as though they never made the gift in the first place.However, there are exceptions to these rules, one of which applies in the case where the donor of the gift, i.e. the person that gave the item away, pays a market rent to the new owner.

In the context of personal possessions, whilst advice will need to be taken by suitably qualified professionals, the broad brush approach might be to start by looking at a rental figure of 1% of the value of the item in question.

Appropriate advice will need to be taken, as indicated, and as part of the lease for the antiques or works of art, when determining the rental value it will also need to be agreed:-

1.What the term of the lease should be

2.What the market rent will be

3.The frequency at which the rent will be reviewed

4.The frequency of the rental payment, will they be annually in arrears, monthly or what else will be agreed?

5.Who will be responsible for insuring the items.

As well as considering these practical issues, in connection with the lease, the taxation of the transaction will need to be borne in mind.

If it can be established that this is a valid gift, which does not trigger the reservation of benefit rules, then if the gift is survived by seven years this will be effective for Inheritance Tax purposes.However, you will need to consider whether this is a gift to an individual or a trust, in which case for the latter, there may be a limit on a value of the items to be given away.

The transfer of the possessions in question will also be a disposal for Capital Gains Tax and the implications of this will need to be considered.If there are significant gains then either the tax will have to be paid, or a trust structure may need to be used in order that the gain can be held over.

If this is something that you wish to discuss in more detail then please feel free to contact Richard Horwood, Head of our Private Clientteam.

Please note the contents of this blog are given for information only and must not be relied upon. Legal advice should always be sought in relation to specific circumstances. Longmores Solicitors LLP are not regulated by the Financial Conduct Authority and are not authorized to provide any form of financial advice.