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INVESTMENT // WEALTH MANAGEMENT

The Taxman Cometh By Chris Jenkins

Are financial penalties squeezing the joy out of your art collection? We ask the experts for advice on assets, locations and liabilities

Furthermore, having bought assets out of taxed income, many individuals forget that that their assets could be taxed again. Debra Blacklock says, “We often hear the refrain, ‘But how will the government know?’ But ignoring the issue is not an answer, and individuals are advised to ensure that their ownership structure and will planning is tax efficient. Taking expert advice to identify potential tax liabilities and seeking planning opportunities to mitigate these is therefore definitely recommended.” 

We often hear the refrain, ‘But how will the government know?’ But ignoring the issue is not an answer – Debra Blacklock, Frank Hirth

IMAGE © SHUTTERSTOCK

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ometimes merely owning certain property can expose the owner to unexpected taxation such as death, inheritance or wealth taxes. Location is key, as it can determine which taxes apply, and whether the value of an asset receives relief under a tax treaty. We asked advice from Debra Blacklock, Senior Tax Manager at taxation and compliance experts Frank Hirth.“In cases where a tax charge arises in more than one country, the country in which the asset is located will (subject to any tax treaty rules) have ‘first’ taxing rights,” she told us. “A credit for that tax should thereafter be available in the other country.” “UK situated assets are typically chargeable to Inheritance Tax, even for non-UK domiciled individuals (typically those born outside the UK to non-UK parents). There are specific exemptions, for example, if a work of art normally kept outside the UK would become liable to the tax, simply because it has been in the UK on a temporary basis for public exhibition, cleaning or restoration.”The situation is different for wealth taxes, which are typically avoided on transfers between spouses, because following the death of the first spouse, a marital exemption usually ensures that all assets may be transferred to the surviving spouse free of tax. This does not though apply in all countries. “Countries such as France have forced heirship rules that need to be considered. These rules can impact any potential tax planning—and the UK leaving the EU may impact these rules,” Debra continued. A typical situation is where a husband and wife with different citizenships, say one French and the other English, want to transfer artworks from the USA to UK—simply moving them could expose them to taxation. The USA doesn’t provide a marital exclusion, and both UK and French wealth taxes may apply. The situation becomes more complicated should one spouse predecease the other. Clearly, expert advice is needed.

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09/08/2019 16:28

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