TaxPersonal TaxVAT blow to UK art

VAT blow to UK art

Booming UK industry under threat as European Commission tells government to raise the VAT rate on art sales to at least 5%, writes Nigel Tutt.

The European Commission has told the UK government that its VAT rules covering works of art can no longer be justified, and should be scrapped when the regime expires on 30 June.

The commission’s stance is included in a report on the application of the EU’s special VAT regime for works of art – introduced from 1 January 1995. The report concludes that these measures have no significant adverse effect on the competitiveness of the art market within the EU.

The UK applies a 2.5% value added tax rate on works of art, considerably less than the EU minimum of 5%.

‘The EU art market shows continued growth, even if not at the same pace as total art sales worldwide (mainly because of the substantial increase of art sales in South East Asia, Eastern Europe and Latin America),’ the commission said in a statement.

‘Within the EU, art market growth is uneven, with the UK (61% of EU sales) powering ahead of other member states. The commission considers, therefore, that there is no basis for prolonging the UK derogation permitting imports of works of art to be subject to VAT at a lower rate than the minimum of 5%,’ it said.

The lower rate in the UK was established to enable it to move towards a higher rate through a transitional period. Since 1994, the UK art market has grown by 50%, compared to 36% worldwide. During the same period the UK’s VAT rate on art imports rose to 2.5%, from nil, the commission said.

Last week’s report was produced with the help of independent consultants, and with the assistance of contacts within the industry. It was required under the 1994 measure introducing the current VAT regime on works of art.

The EU’s standard rate of VAT – between 15% and 25% – compares with a sales tax in New York state of 8.5%.

The New York rate, however, is charged on the full sale price, while the EU’s VAT is charged on the margin.

‘A private individual – who is not a taxable person for VAT purposes – would have to purchase a work of art on which the vendor had made a profit approaching 50%, before the purchaser in the UK began to pay more tax on the transaction than a resident of New York State,’ he said.

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