The situation in the US<\/p>\n
Mari-Claudia Jim\u00e9nez was the chair and president of Sotheby\u2019s Americas and head of global business development until 2025. She is now a partner and global co-head of art law practice at Withers, where much of her work revolves around long term planning of art collections.<\/p>\n
In the US, she says, estate taxes can be imposed at both the federal and state level. Each person is allotted a lifetime exemption from estate and gift taxes (currently set at $13.99m per person or $27.98m per married couple, though this amount is set to go up to $15m per person or $30m per married couple this year). Up to 40% tax is charged on the estate\u2019s value over this threshold. On top of the federal tax, a few states impose their own \u201cinheritance taxes\u201d (tax charged to the beneficiaries on assets received): Kentucky, Maryland, Nebraska, New Jersey and Pennsylvania. But a number of other states, including New York, have a separate estate tax with their own thresholds and rates. \u201cDepending on where you live, if you\u2019re a New York collector, for example, you may have to pay a New York estate tax and a federal estate tax of 40% above your lifetime exemption amount remaining at your death,\u201d Jim\u00e9nez says.<\/p>\n
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Mari-Claudia Jim\u00e9nez, the global co-head of art law practice at Withers Courtesy of Mari-Claudia Jim\u00e9nez\/Withers<\/p>\n
Capital gains tax (CGT) is a different layer, she says. \u201cIt usually only applies when a beneficiary sells an inherited asset for more than its value as of the descendant\u2019s date of death. In the US, we have what is called a \u2018step-up in basis\u2019 where the beneficiary\u2019s cost basis is reset to the asset\u2019s fair market value at the date of the descendant\u2019s death. That means that if a beneficiary decides to sell an inherited artwork, CGT is generally only charged here on the amount of appreciation after the inheritance, not on all of the gain since the original purchase.\u201d<\/p>\n
Preserving a legacy while reducing the burden on their children is the main concern of most collectors, Jim\u00e9nez says, but \u201cmore often than not, sadly, the kids can\u2019t afford to keep the collection\u2014or in some cases just don\u2019t want it\u2014because it\u2019s impossible to be able to pay the estate tax obligations and keep the collection\u201d.<\/p>\n
I can see single-owner sales increasing\u2026 they\u2019re an efficient and lucrative way of selling things <\/p>\n
Wendy Philips, partner, Tennant McQuillan<\/p>\n<\/blockquote>\n
Getting a valuation of a collection is the first step in estate planning. But be prepared that the value may have gone down. \u201cSadly, we see this a lot,\u201d Jim\u00e9nez says. \u201cThere are clients who bought really aggressively in the early 1980s\u2014French furniture, Impressionist paintings, Old Master paintings, silver\u2026 they\u2019re assuming these things are still worth the same now, but in the case of \u2018brown furniture\u2019, it\u2019s often worth a tenth of what was once paid for it.\u201d But on the flip side, she says, \u201cI\u2019ve worked with clients who will say, \u2018My collection is worth $100m\u2019 and then it\u2019s worth many times that.\u201d<\/p>\n
A recent valuation is also paramount due to the \u201cstep-up in basis\u201d. \u201cSo, if you bought a Basquiat for $2,000 in 1982 and it\u2019s appraised at $140m when you die, then whoever inherits does so at a tax value of $140m,\u201d Jim\u00e9nez says. \u201cBut if it sells for $200m, then the beneficiary is going to have to pay CGT only on the $60m of appreciation above that date of death tax value.\u201d Therefore, if the valuation on an estate is artificially low to lessen the estate tax, it can backfire, as the Internal Revenue Service (IRS) may challenge the value, and the heirs would then ultimately face both additional estate taxes and a high CGT when they sell.<\/p>\n
As overloaded museums become more selective of gifts, more collectors are investigating creating their own museums. That, however, is a huge investment. \u201cIt requires an enormous endowment in terms of not just giving the collection, but funding the museum too, in perpetuity,\u201d Jim\u00e9nez says. She points to the recent case of Rosa de la Cruz, a collector who created her own museum in Miami in 2009. She died in February 2024, the museum was closed in March that year and her husband, Carlos, sold off the collection. He told the Miami Herald that the museum was Rosa\u2019s \u201cbaby\u201d and the works were being sold to pay taxes and operating costs. As Jim\u00e9nez says, \u201cIt\u2019s a sad and cautionary tale about how what you want isn\u2019t necessarily what your heirs want.\u201d Indeed, the children of voracious collectors can sometimes be resentful. \u201cThey say, \u2018This was an obsession for so long, it took time away from me, I\u2019m over it.\u2019\u201d<\/p>\n
The situation in the UK<\/p>\n
Wendy Philips, the former UK head of tax and heritage at Sotheby\u2019s, is now a partner at the cultural property advisers Tennant McQuillan. \u201cWhat really distinguishes the US from the UK is that, broadly, important UK collections fall into two groups,\u201d she says. \u201cThere are inherited collections\u2014say, within a stately home\u2014where the owners see themselves as custodians during their lifetimes. Because of the system of primogeniture that tends to be applied in the UK, often everything goes to one child and they will try to do everything not to have to sell objects on a generational transfer.\u201d<\/p>\n
With the second group, it tends to be quite a different approach, Philips says, when the person who has died is the person who has put that collection together\u2014something more common in the US, but of course it happens in the UK. \u201cThere\u2019s unlikely to be a primogeniture situation, and if there is more than one child, the estate\u2019s going to be split,\u201d she says. \u201cIn that situation, the heirs may opt for a single owner sale, particularly when one or two works are far more valuable than everything else and it\u2019s difficult to allocate to a single beneficiary.\u201d<\/p>\n
In the UK, far more families will be subject to IHT, as the tax-free threshold is \u00a3325,000, plus an additional \u00a3175,000 if the parent passes on their main home to a direct descendant, after which 40% IHT is due (the tax-free allowance can be passed on between married partners, as in the US). Most gifts made more than seven years before death are also free of IHT. Executors must value the estate, report it to His Majesty\u2019s Revenue and Customs (HMRC) and pay the IHT. The recent UK budget last November did not make any major changes to IHT, though in the 2024 budget business property relief was capped at \u00a31m, which impacts some art businesses (such as galleries and artist estates) where works of art are classed as being part of the business. Having previously paid no IHT, they will have to pay 40% above the \u00a31m threshold from April 2026. The acceptance in lieu scheme<\/a> (giving a work of art to the nation in lieu of tax) and conditional exemption (which defers IHT if a heritage asset such as a work of art or historic house is not sold and the public are allowed access to it) are frequently used by Philips and her clients to mitigate tax bills.<\/p>\n
\u201cOften you do a bit of a pick and mix\u2026 some conditional exemption, some tax to pay, and an offer in lieu of inheritance tax,\u201d Philips says. \u201cThe helpful thing with chattels is that you can do a smorgasbord approach, because you are dealing with multiple assets.\u201d Philips has seen a slight interest in lifetime gifting of assets, but cautions: \u201cIt\u2019s always a mistake to rush ahead and make significant gifts to the next generation if it\u2019s not the appropriate thing to do, but if it\u2019s something you\u2019re planning to do anyway, then you would probably want to get on and do it.\u201d<\/p>\n
Another option available is for a parent, for example, to give their collection away to a child before they die (if the parent wants to keep it in their home, they must pay a fair market rent to the child). \u201cIt\u2019s a difficult area\u2014it used to happen a lot more,\u201d Philips says. \u201cYou\u2019re making a disposal, so you have to pay CGT\u2014now at 24%\u2014on the gain [increase in value since acquisition]. So that puts people off.\u201d However, lifetime gifting is more common with lower value items thanks to the small chattels exemption whereby, if it is worth \u00a36,000 or less, no CGT is due.<\/p>\n
Sometimes a collector will choose to do a sale of their collection in their own lifetime, Philips says, \u201cbecause they want to enjoy it\u201d, pointing to the Pauline Karpidas sale at Sotheby\u2019s in London last September. \u201cI can see single-owner sales increasing\u2026 they\u2019re an efficient and lucrative way of selling things.\u201d Of course, for a UK tax resident,\u00a0CGT is due on any gains made in lifetime single owner sales, but they can still be tax efficient if you give the proceeds to your beneficiaries and live for seven years or more, therefore just paying 24% CGT on the gain, not 40% IHT on everything. However: die before the seven years is up and you can end up with a higher tax bill than if you had done nothing.<\/p>\n
The situation in France<\/p>\n
Inheritance tax in France (droits de succession) applies to all assets transferred on death, including art and antiques, says Antoine Gabizon, the head of the tax department at Fieldfisher\u2019s Paris office. \u201cThe tax is assessed per beneficiary, not on the estate as a whole, and rates vary by relationship: children pay between 5% and 45%, while unrelated heirs can face rates up to 60%,\u201d Gabizon says. Each child has a \u20ac100,000 tax-free allowance, while spouses or civil partners are fully exempt.<\/p>\n
Unlike the UK or US, forced heirship rules apply in France, whereby a fixed share of the estate passes to children regardless of their parents\u2019 wishes. \u201cThis can complicate plans to keep a collection intact or donate it to an institution,\u201d Gabizon says. He adds that while \u201ctools such as inter vivos gifts, and usufruct arrangements [whereby, for instance, a child legally owns a work while their parents can still live with it] can mitigate tax exposure, artworks themselves do not enjoy preferential treatment under current IHT rules.\u201d<\/p>\n
Like HMRC, French tax authorities are increasingly watchful of art valuations within estates. \u201cNotaires must provide detailed inventories, and the administration can challenge declared values using auction data or expert appraisals,\u201d Gabizon says, adding that a surcharge of up to 40% can be charged for deliberate understatement of value. He advises maintaining provenance records and getting a professional valuation to avoid disputes.<\/p>\n