The UK has long been a tax efficient entry point for the import of art and other assets into the EU single market. However, with the Brexit transition period coming to an end on 31 December and still no deal having been reached, it is unclear what the UK import rules will look like from January.
Currently, the effective rate of UK tax on imports of art is 5%, which is lower than most other European countries. Under current rules, an owner may import a work of art to the UK from outside the EU and is then free to transport it to other EU countries, where the import tax rates may be higher, without incurring any further import-related tax charges. If the owner should then wish to bring the work of art back to the UK, there would also be no further tax charge.
The current regime is beneficial in a scenario where, for example, an individual buys a work of art in the US and then imports it to the UK in the short term to take advantage of the favourable special import VAT rate of 5%. The work may then be taken to another EU country for display in a museum or gallery for a period and then brought back to the UK, or sent on to another member state to be kept there for the long term. Currently, in this scenario, the individual would only pay UK import tax, at a relatively low rate, on the initial importation of the work to the UK and no further tax would be payable despite the work having crossed several European borders.
The benefit of the 5% import VAT rate is not confined to collectors—it is also beneficial to UK-based art dealers or gallery owners and buyers of art in the UK. A commercial importer, such as an art dealer or gallery owner, who imports works from outside the EU (whether as an owner or agent) would benefit directly from the UK import tax rate. Alternatively, they may bring works to the UK on a "tax-suspended" basis in the first instance and then account for any import taxes at a later date if the works are then sold. In either case, any VAT cost passed on to a customer would typically be only 5% rather than the 20% usually charged on UK sales of goods in a commercial context.
As matters currently stand, with less than a month to go there is still no visibility as to what the UK import tax regime will look like from 1 January 2021. The new general import regime and customs duty and VAT regulations are on the statute books but are yet been implemented. These make reference to secondary legislation which will include details of exemptions and reliefs. However, we do not yet have details of this secondary legislation.
What art dealers and collectors should do to prepare for Brexit
It is hoped that the new UK legislation will be substantially in the same form as it currently stands, however, in the short term:
• if you are planning to import art to the UK then it is advisable to make arrangements to do so;
• any works of art currently in the UK which it is intended to move elsewhere in the EU, should be exported; and
• works of art currently in the EU which it is intended should be returned to the UK, should be returned before the end of the Brexit transition period.
In the medium term, it will be important to take specific advice as to the current UK import rules before implementing any plan to import art to or via the UK as the rules may be different from 1 January 2021.
Louise Williamson is an associate in Withers' Private Client team