Concern that a pending flat tax on the incomes of wealthy nonresident investors might indirectly affect the British art market has led to calls that the bill be modified.
NEW YORK—Concern that a pending flat tax on the incomes of wealthy nonresident investors might indirectly affect the British art market has led to calls that the bill be modified.
The new tax, announced recently by the British Treasury office as a package of reforms of the residence and domicile personal tax rules, would assess a single fee of £30,000 ($60,000) on individuals who reside in the U.K. at least 183 days of the year, or who have lived in England as foreign nationals for more than seven years and derive some or all of their earnings from investments elsewhere. These “nondomiciled residents,” who are estimated to number 114,000, previously were not required to pay any tax on overseas investment income. The new tax is expected to add an additional £800 million ($1.6 billion) to government coffers.
Both the British Antique Dealers Association and the British Art Market Federation have criticized the new tax as potentially “driving people out of England, which is really the last thing you want to do,” said Elaine Dean, secretary general of the British Antique Dealers Association. “It is another damaging tax that is coming in against the wealthy, and the wealthy [are] our clients.”
No More Travel Time-Outs
Under the new rules, scheduled to take effect April 1, the traditional start of the British fiscal year, days spent traveling in and out of the U.K. will be counted as days in residence; this is expected to add substantially to the number of days that thousands of people must list as the time they spend living and working there. Previously, investors who regularly commuted to England on Monday, flying out on Friday, were required to count only Tuesday, Wednesday and Thursday as their days in residence.
“It’s really a fairness thing,” suggests Zoe Anderson, a spokesperson for the British Treasury. “We have a number of wealthy people who flit in and out so they don’t have to pay the tax,” she told ARTnewsletter, adding that a considerable number of these individuals, and others who have lived principally in England for more than seven years, list their official residence as Bermuda or Monaco, where income taxes are relatively low.
Long an Obstacle
The effect of British taxes on the London art market has long been a source of concern, starting with the value-added tax on art and antiques entering the U.K. from outside the European Union in the mid-1990s.
From 1999-2006 the tax stood at 5 percent on the overall price of the work (hammer plus premium). Then it was modified with a separately assessed 17.5 percent tax rate on the auction premium. Also in 2006, the resale royalties tax on secondary-market sales of living British artists was raised from 0.25 percent to 4.0 percent, depending upon the actual price (ANL, 3/14/06, pp. 3-4).
These taxes, critics claim, provide a disincentive for people to buy and sell in England and an incentive for them to shift the market to the United States, where these taxes do not exist.
“If you produce a disincentive to buy or sell there, it’s just as easy for the rich people who are influential members of our art and antiques market to sell things elsewhere,” said Anthony Browne, chairman of the British Art Market Federation.
He noted that the British art and antiques market has been declining in relation to that of the U.S., citing 2006 estimates of the British share of the international art and antiques market at 27 percent ($14.056 billion), compared with 46 percent ($29.187 billion) for the U.S.