Works of art lent by UK res / non-dom private collectors – when are art remittances exempt?

The request from a UK museum or gallery for a work of art to be included in an exhibition in the UK will generate excitement for any owner. However, for an individual owner who is UK tax resident but not tax domiciled and who purchased the work of art abroad with foreign income, foreign earned income, or foreign chargeable capital gains and keeps the work of art outside the UK, this request also throws up a potential tax headache.

Although little emphasis is placed on the beneficial aspects of culture currently, in 2008, when there were significant changes to the legislation in relation to the remittance of income and gains arising abroad, the Government decided to support our great museums and galleries so that they could continue to mount internationally important exhibitions of art from around the world.

An individual who is UK tax resident is liable to income tax on their worldwide income and chargeable gains on an arising basis. If that individual is not domiciled in the UK for tax purposes, they may rely on the remittance basis in certain circumstances and only be taxable in the UK on their UK income and gains and those income and gains that arise outside the UK and are brought into the UK, including by importing works of art purchased abroad.

For the owner who is lucky enough to be asked to share their wonderful work of art in a UK museum or gallery exhibition, the potential of a significant UK tax bill on acquiescing to the request will not materialise, provided the strict rules are followed. The loan must be:

• on a temporary basis for a public display in an approved museum, gallery, or similar establishment;
• when it is not on public display, it is in storage at or in transit to or from the museum or gallery (or other commercial premises used by the museum or gallery) pending or following public access; and
• the period of public display is for no more than two years (or for longer if HMRC allow) with the two year period beginning on import and ending when it leaves the UK.

Public access is not defined but is understood to be where the work of art is available on public display or will be made available on public request for viewing or educational use where it is too fragile to spend a great deal of time in daylight.

It is not unusual for a work of art to be cleaned, conserved and or restored before going on public display. The UK has many highly regarded conservation and restoration professionals. For those who have watched the BBC’s ‘Fake or Fortune or Britain’s Lost Masterpieces‘ will be aware of the work these talented individuals undertake. Some museums and galleries have their own conservation studios, but many use independent establishments.

It is possible to bring in a work of art into the UK for repair or restoration without triggering a charge to tax for an unlimited period of time where it is:

• undergoing repair or restoration;
• held at the conservation studio pending or following repair or restoration; or
• in transit into the UK for this purpose or out of the UK following completion of the work.

Where the work of art comes into the UK for repair or restoration and this is immediately followed by a period of public access or vice versa, then the rules relating to repair are treated as met.

Once the work of art is in the UK, it may be tempting for the owner to seek to enjoy it in their UK home. It may have been purchased to own a piece of history, or due to the emotional response it creates, to build a legacy, to save something important, to learn something and pass it on, or to reinforce the owner’s identity. Such personal use is possible on a temporary basis, provided the work of art is not in the UK for more than 275 ‘countable’ days. The 275-day limit is cumulative across all periods of importation in relation to the specific work of art. The rules are very strictly applied. Where public access is given at an approved museum, gallery, or other institution, the days where the public access rule is met do not count towards the 275 days.

This article only skims the surface of these rules. If an invitation to lend a work of art for public display is received, once the euphoria has died down, before accepting it, advice for both tax and in relation to the wellbeing of the work of art should be sought; a significant tax bill will not be welcome, and neither will increases to the risk of damage, loss or destruction or it being stolen.

This article was first published in our Primed International newsletter which provides monthly legal insights from our international team. Be the first to receive the next edition and subscribe here.