Art in an estate should be treated in the same way as other movables. That means you can not just secretly donate your art collection away. The tax authorities are always on the lookout.
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A painting you bought for thousands of euros by a lesser-known artist or a lithograph of 500 euros is, in principle, part of your household goods, just like a floor lamp or an expensive fruit bowl. But if you’re a true collector of masterpieces, that’s a different story. Borremans, Permeke and Warhol hanging on your walls occupy a significant place in your wealth. The IRS would like to tax them on their value.
With art, as with other movables, there are two possibilities. Either the works of art are passed on to the heirs as part of the estate, or a gift is given alive.
If you choose the first option, inheritance tax must be paid on these items after the owner of the works of art has died. In the Flemish region, in a straight line and between partners, 3 percent is charged up to a value of 50,000 euros, 9 percent from 50,000 to 250,000 euros and 27 percent for the seizure over 250,000 euros. For other heirs, the rates vary from 25 percent up to a value of 35,000 euros, 45 percent for the seizure between 35,000 and 75,000 euros and 55 percent from 75,000 euros.
To avoid inheritance tax, works of art can also be donated alive. This can be done with a hand donation or with a notary donation.
If you choose a hand gift, there is no registration obligation and no gift tax must be paid. The donor must then continue to live for three years after the gift, otherwise inheritance tax must still be paid on the donated property after death. In Wallonia, this period has been extended to five years. “The risk of the donor’s sudden death within the three-year period can be insured,” says Astrid Dutré, property planner at Nagelmackers Bank. ‘That way, the donor has certainty that the artwork will not be sold to pay the inheritance tax.’
With a hand gift, it is important that the artwork moves from the giver’s home to the gifted one. If you as a donor still want to enjoy the artwork in your own home for as long as you live, it is only possible if you donate subject to the right of use and therefore visit the notary. In that case, you pay a gift tax of 3 or 7 percent depending on the relationship with the gift recipient.
With a hand gift, it is important that the artwork moves from the giver’s home to the gifted one.
Artworks leave traces
Keeping works of art out of sight of the tax authorities is not an obvious matter. Each work of art leaves several traces. There is no such thing as a land registry for works of art that indicates who owns certain works of art. But it is never excluded that an official from FPS Finans is present at an auction.
The artwork’s certificate of authenticity or origin can also be a source of information. It gives an overview of who once owned it and where the work was exhibited.
It is never excluded that an official from FPS Finans is present at an auction.
But over time, you may leave other traces that suggest you own certain works of art. This is the case, for example, if you buy the work through a company and the purchase invoices end up in your bookkeeping. But also renting or lending the work for an exhibition does not go unnoticed. The income you receive from this must be included in your tax return under the heading ‘personal income’.
Determination of value
If you transfer the works of art through a registered donation, or they end up in the estate after your death, their value must be calculated. To avoid discussions with the tax authorities, it is best to leave the valuation to an art expert who can justify the set value.
The value also comes through the insurance you have taken out for your works of art. In the event of the death of the policyholder, Belgian insurance companies must report the policies taken out in his name. Thereby, the insured goods and their value are passed on.
Hold the collection together
If you want your carefully crafted art collection to stay together after your death, there are several options.
Assuming one of your children is more interested in art than the other, you can transfer your collection to that child through a gift or will. Unless otherwise stated, the Inheritance Act presupposes that you want to treat all your children equally. ‘The donation is considered an advance on the inheritance’, explains Dutré van Nagelmackers. ‘The gift already received will be set off against his inheritance at your death.’
If you still want to give more to one of your children, there is a limit. Together, your children are entitled to half of your stay. But with the other half, you’re free to do as you please, and you can favor one of your children by donating or creating a will.
Partnership and foundation
If you want to hold together your art collection in the long run, you can also do so by organizing it into a structure. The simplest structure is a partnership. In return for the contribution from the art, you will receive partnership shares. You can pass it on to the next generation while you are alive. The gift rate in Flanders is 3 or 7 percent depending on the relationship between the relationship with the gift recipient.
The benefits of a partnership are the limited rules and the ability to retain control.
The benefits of a partnership are the limited rules and the ability to retain control. “But one has to take into account a number of formalities, such as keeping accounts, holding an annual meeting, registering with the Crossroads Bank for Enterprises and keeping the UBO register with the final beneficiaries up to date each year.” says Dutre.
No registration fee is payable on the contribution of the art, and the partnership is not liable to corporation tax. In the event of death, the inherited partnership shares must be notified in the estate.
A private fund is also an option. It is created to achieve an uninterested goal: to hold an art collection together and carefully manage it for future generations. A private foundation can be established by life, but also by will.
You will not receive any units in exchange for the contribution and you will in principle definitely give up your assets. The tax on the transfer to the fund is low. In the case of an inheritance, the rate in the Flanders region is 8.5 percent and in the case of a registered donation 5.5 percent. ‘If you compare these rates with the inheritance tax rates, which increase to a maximum of 27 percent on a straight line and between partners and up to 55 percent between others, the tax savings are immediately clear,’ says Dutré.
Payment of inheritance tax with works of art
It is basically possible to pay the inheritance tax in full or in part with works of art. These can be works of art that were previously owned by the heirs, or works of art that are part of the estate.
Inheritance tax can be paid with art. The Minister of Finance must then recognize it as a loose cultural heritage, or it must be internationally known.
But not all works of art qualify. The Minister of Finance must recognize the works of art as movable cultural heritage, or they must be internationally recognized. A special committee will advise on this and determine the value of the works of art. The same estimate forms the basis for determining the inheritance tax.