Saracens Blog

The Art of Investment

Fine Art Gallery

On 11th October 2016, on her first solo overseas trip, HRH The Duchess of Cambridge proved she is a master of creating an iconic image.  Knowing she would be viewing Johannes Vermeer’s celebrated ‘Girl With A Pearl Earring’ held in the Mauritshuis Museum in The Hague, she choose to wear a pair of beautifully crafted pearl earrings herself.

The result – an image that is a work of art in its own right.

The British Royal family owns the largest private art collection in the world.  Over the centuries, it has built up a stunning portfolio, including works by Leonardo da Vinci, Vermeer, Caravaggio and Rembrandt.

There is a key reason why wealthy aristocrats have always invested in art… 

In addition to obtaining something beautiful, investors are attracted by the tangible nature of art and supposed status as an “uncorrelated” asset class that allows diversification from equities, bonds and property.

In March 2016, the much anticipated Art Market Report was released by The European Fine Art Foundation (TEFAF).  It showed that worldwide art sales topped US$63.8 billion (£52.35 billion*) in 2015.  The United States was the global market leader with a 43% share of total sales values, followed by the UK with 21% by value and then China, with 19%.

High-end sales dominated the market, with works selling for more than US$1 million (£820,546) accounting for 57%of the value of fine art auction purchases in 2015, despite representing less than 1% of the total number of sales. Growth of the million-dollar plus segment grew a whopping 400%, with ultra-high-end works (over $10 million (£8,206,272) experiencing more than 1,000% growth in the same period, accounting for 28% of total sales.

As with any asset class, expert advice should be obtained before parting with any capital, no matter the value.  Just because a piece of art captivates you with its beauty and meaning, does not mean it will provide a return.  If you want to make a profit, your head must rule your heart. That’s where your expert advisors can assist you.

Where to look

High-end art fairs such as ‘The International Fine Art and Antiques Fair’ (TEFAF) and auction houses such as ‘Christies’ and ‘Sotheby’s’ are a good place to start.

Online art galleries such as ‘New Blood’, ‘Saatchi Online’ and ‘Minigallery’ are worth investigating along with the works promoted by Europe’s best art dealers such as ‘Kamel Mennour’ (Paris), Sadie Coles’ (London) and ‘Eivind Furnesvik’ (Oslo).

If you are experienced at purchasing art and want to snap up a relatively inexpensive peicne of artwork from an up-and-coming artist then head to London’s top art and design schools, for example ‘Central Saint Martins College of Art & Design’.  You may strike it lucky by purchasing something by a completely unknown artist, who then goes on to be the next Elizabeth Peyton.

A long-term investment

Art is not an easy investment to liquidate. Therefore, investing in it carries a risk.  Because so many sales and purchases happen on the private market, it is difficult for indices to paint an accurate picture (excuse the pun) of returns.

Experts do however suggest art should be held onto for at least five years if a return is desired.

Due diligence

Before offering a six or seven figure sum to purchase an artwork, it is vital that you or your agent complete a thorough due diligence exercise, not only regarding the artwork, but of the seller also.

An experienced solicitor will check registry’s such as The Art Loss Register, which is an international database of lost or stolen art.  They will also assist you in ensuring the authenticity of the artist and organise independent valuations as appropriate.

Tax planning is also an important consideration when building up a fine arts collection.  VAT on imported works is only the beginning of the tax implications involved in collecting highly valuable art.  An experienced solicitor will work with a specialist tax advisor and discuss with you, amongst other key considerations:

  • The manner in which you should consider taking ownership of the artwork.
    • For example, if you choose an individual ownership structure, you may be liable for taxes such as capital gains tax (CGT) and / or inheritance tax (IHT).
    • Holding the works in an offshore trust can help minimise the tax payable because prima facie it places the artwork outside the remit of your estate for IHT purposes and secondly, CGT is only payable upon the distribution of sale proceeds to a UK resident beneficiary, not when the artwork is sold.
    • It is also important to note that CGT and IHT may not apply if the artwork is put into the ownership of a person not domiciled in the UK, providing the artwork never enters Britain.
  • Whether you would benefit from gifting the artwork to a charity so members of the public or your family can enjoy it?
    • If so, you will need to set up a charitable trust. The advantage of this is that although you will no longer own the artwork, you and / or your family can control and oversee it.
  • You may also wish to consider the ‘conditional exemption scheme’ in which heritage assets such as artworks are exempt from IHT or CGT provided certain conditions are met, in order to protect them from being sold privately.
    • Through the scheme, no tax is paid when an asset passes to a new owner on death or is gifted, as long as the new owner agrees to:
  1. look after the item; and
  2. allow the public “reasonable access” to it (at least 100 days a year, subject to the object’s condition) and keep it in the UK.

Investing in artwork offers so much more than just financial returns.  It provides the investor a way to gain a wealth of knowledge, acquire beautiful objects and if so desired, provides an opportunity to give back to the community by allowing the public to view the collection.

Art may not provide the sharpest return on investment, but it can offer a lifetime of enjoyment and satisfaction.

Ensure you approach artwork with the delicacy you would any other valuable asset like and take professional legal advice and associated assistance so you can maximise the potential of your money and artwork.

*All currency conversions correct as at the time of writing

 

Saracens Solicitors is a multi-service law firm based opposite Marble Arch on the North side of Hyde Park in London.  We have years of experience representing high-net-worth individuals in buying and selling art and other luxury items. For more information, please call our office on 020 3588 3500.

Do you have any comments to make on this article?  Please feel free to add them in the section below.



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