UK Law and Practice Contributed by: Margherita Barbagallo, Sanskriti Mohta and Nilojana Nirmalan, Dragon Argent
The first step is a full inventory, including professional valuations for probate, insurance and tax purposes. Critically, open discussions with family members about the future of the collection are essential. Establishing whether the family wishes to keep specific works or the entire collection, or whether they would prefer to sell, avoids later conflict. If future generations do not want the responsibility of maintenance and insurance, a planned sale during the collector’s lifetime may be preferable to a forced sale after death. Agreeing on a strategy early can significantly reduce the chances of a destructive post-death dispute. Making outright gifts to the next generation can miti - gate the inheritance tax (IHT) exposure of an estate. These are potentially exempt transfers, meaning they become exempt if the donor survives for seven years. Gifts can be formally recorded by deed to avoid any argument about their effectiveness. If the donor wish - es to continue enjoying the artworks, they can gift them to the next generation and then lease them back at a commercial rent. This arrangement allows the seven-year IHT clock to start ticking while the donor retains physical enjoyment, provided the rental agree - ment is properly documented and maintained. The annual IHT exemption of GBP3,000 per tax year can be utilised and carried forward one year. For capital gains tax (CGT), each individual has an annual allow - ance of GBP3,000 for 2025/26. Individual objects val - ued at GBP6,000 or less are generally exempt from CGT on disposal, and wasting assets such as clocks and watches with a predictable life not exceeding 50 years are also exempt. A professionally drafted will can include specific legacies of individual artworks or the entire collection to named individuals or institu - tions. Placing the collection in a trust can also be a powerful tool to manage the assets for future genera - tions, control who benefits, and potentially mitigate tax liabilities. If the collection is of national importance, schemes such as AIL can be planned for in a will, allowing the collection to settle IHT bills. The Conditional Exemp - tion scheme can indefinitely defer IHT on pre-eminent works in return for public access. Private treaty sales to UK museums offer significant tax incentives, poten - tially leaving the seller in a better financial position than an open market sale.
The plan must address who will manage the collec - tion, how and where it will be stored, and who will be responsible for insurance, conservation and security. These practical considerations are as important as the tax and legal structures, ensuring that the collection is preserved for future generations according to the collector’s wishes. 10.2 Legal and Fiscal Issues in Artwork Succession Dying without a will (intestacy) or with a poorly drafted one can create significant problems for an art collec - tion. Intestate Succession The Intestacy Rules provide a rigid formula for dis - tributing an estate. For an art collection, it may force its sale to divide the value among multiple beneficiar - ies. It could also result in the collection being broken up and individual items passing to different people, destroying its coherence and potentially reducing its overall value and significance. The lack of planning can lead to a hefty, unforeseen IHT bill at 40% on the value above the nil-rate band (GBP325,000). The estate’s executors may be forced into a “fire sale” of valuable artworks at auction to raise the cash to pay the tax within the six-month deadline, potentially achieving a lower price than a planned, private sale. Testamentary Succession A will might be challenged under the Inheritance (Pro - vision for Family and Dependants) Act 1975 if it fails to make reasonable financial provision for certain family members. If the bulk of the estate is tied up in an art collection left to one child, another child could make a claim. Wills must also be clear and precise in identifying artworks (eg, with the title, year, medium, dimension) to avoid ambiguity and disputes between beneficiaries. The primary fiscal issue is the 40% IHT charge. How - ever, options exist to mitigate this. The estate can apply for a Conditional Exemption if the works are pre- eminent, deferring the tax in return for public access. Alternatively, the estate can use AIL to transfer pre- eminent works to the nation in satisfaction of the IHT
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