As wealth managers try and figure out the potential effect on their clients from a vote by UK citizens to leave the EU, some experts argue that the impact will be mixed.
The UK’s art market is bracing for whether voters choose to leave the European Union in the 23 June referendum, with experts saying there could be some adverse effects from a “Brexit” vote. Some consequences, however, such as changes to value-added tax, may be positive.
While hardly a top issue in the Brexit debate of recent weeks, the impact on the art market became more prominent when the Vote Leave Campaign projected its slogan onto the Angel of the North statue in the UK northeast – with campaigners perhaps not realising that the statue had been funded partly out of EU money.
Brexit supporters, however, say the democratically-elected UK government should make decisions on the funding of UK arts institutions rather than the EU, and point to the savings they argue would be made by Britain leaving the EU. Indeed, an exit from the EU could require a complete reassessment of how the arts in the UK are funded in future, according to Becky Shaw, a solicitor from law firm Boodle Hatfield.
One important issue, that of Artist’s resale rights, or ARR, which took effect in the UK in 2006, may also come under the spotlight if Britain votes to exit the EU. Supporters of ARR say it is the most significant new right for visual artists in recent times, giving artists an ongoing stake in the value of their work. Its critics argue, however, that ARR puts London at a disadvantage to its competitors – such as New York and Hong Kong – that do not levy ARR on sales, she said.
“While those in the art trade may wish to renegotiate ARR if Britain were to leave the EU in order for the UK to better compete with New York and Hong Kong, artists themselves are likely to oppose changes to ARR that could see their royalties reduced,” Shaw said.
Shaw said another issue in play is the UK’s export licence regime, which was introduced in 1993 by EU regulation, replacing the UK's previous licensing regime. Many important artworks and artefacts have been “saved for the nation” through the export licensing system, including Jane Austen’s ring and a Van Dyck self-portrait, now hanging in the National Gallery, Shaw said.
“It is unclear if Britain were to leave the EU whether and how the export licensing system might change, which could affect the UK's ability to save works for the nation in this way,” says Becky. “Its supporters point to the treasures now on display in public institutions which would otherwise have disappeared into private collections. Critics, however, would welcome the opportunity to try to change the current system, which they see as an unwelcome administrative burden and additional cost. Critics also point to the fact that the rules vary greatly in different EU countries which can cause difficulties for galleries and buyers."
Randall Willette, managing director of Fine Art Wealth Management, an expert on the field of art investment and a member of WealthBriefing’s editorial advisory board, said he is most concerned about how a “leave” vote would affect export licences and movement of art across borders. “Collectors who regularly move art across borders understand the importance of complying with import-export regulations and will normally seek advice before shipping works of art. They know that crossing borders can trigger tax liability but exemptions may be available,” Willette said.
“Collectors exporting art from European countries may find that the export office is unwilling to issue an export licence. Where a licence is not forthcoming, they may need to negotiate a solution with the relevant government department. Given that illegal export is an offence in many countries this may affect the resale value of an art work or an entire collection. It will be more important than ever for a collector to seek professional advice to guide them through the minefield of official documents,” he said.
"For cultural goods over certain age and monetary limits, an individual licence is required for export from the UK to EU destinations and non-EU destinations, with certain exceptions. There is both EU and UK legislation on the export control of cultural goods and either an EU or a UK licence application may be required depending on the type of object and the destination to which one intends to export. Licences may be required for both permanent and temporary exports, including when one is transferring their own property abroad. If they are intending to export a cultural object, regardless of its destination (within or outside the EU), they must apply for an individual licence if their object is valued at or above a specified financial threshold,” Willette continued.
In the UK, export control for cultural objects is managed by the export licensing unit within the Arts Council. If one wishes to take a cultural object out of its country of origin, the appropriate checks must be made. It is essential that collectors understand the implications of any legislation in the country of origin, and any intermediate countries, including export control. Equally, they have to ensure that taking the object out of the country will not be in violation of that legislation. Export restriction lists from other countries are not always easily obtained. UNESCO operates a database of cultural legislation around the world.
Boodle Hatfield’s Shaw said one possible plus factor from Brexit is that it would require a new system to be introduced for works imported to the UK, which would improve on the present situation where both UK and EU law applies.
Turning to VAT, Shaw said import duty can be a headache for many UK art dealers, galleries and auction houses. Works imported to the UK from outside the EU are liable to a 5 per cent import VAT charge, whereas works imported from the EU are exempt from import VAT.
There is a temporary import system which allows works to be brought into the UK for a certain period, but dealers complain about the burden of paperwork, as well as the financial limits on the number of works being held on temporary import at any one time. Some art dealers have suggested that Brexit might provide an opportunity to abolish import VAT altogether, which may encourage more of the international market to move to London, she said.