Calculating CGT on inherited artwork

lepidopterist

Hi there -

I recently sold a painting at auction, abroad, for a fairly sizable sum; enough to put me in Capital Gains Tax country - not far from the borders, hopefully! I am delighted (obviously), but also confused about how CGT should be worked out.

First of all, please tell me if I got this straight;

1) I only pay tax on the difference between what the painting was worth when it came into my possession, and the price I sold it for.

2) The first £11,000 of that sum is exempt.

Secondly, can someone tell me -

1) I'm paying tax on the item in the country where it was sold; do I begin my calculations on my gains after deducting things like foreign tax, and seller fees? I should only be taxed on what I actually gain, right?

2) How is the early 90's value of a painting calculated? Is there an art market index somewhere that is used for these purposes?

Thanks!

00ec25

1. correct - but was the person from whom you inherited it subject to UK tax or did they live abroad?

If they were UK resident for tax purposes then you inherited at whatever was its value for probate purposes and that should be recorded by the executor or whoever handled the admin of the deceased's estate. If the deceased's estate was liable for Inheritance Tax (and paid some) then the value of the painting will be officially recorded (aka "ascertained") and that is the value you must use in your CGT calculation. If the deceased did not pay IHT, then the value has not yet been ascertained by HMRC, so when you present your CGT calculation HMRC will at that time review the probate value and decide if they accept it or not. (see note *)

However, if the deceased was not subject to UK tax then you will have to establish what the market value was on the date of death (see note *) on your own since we do not know what the inheritance rules are for the country they died in but that will still be your acquisition cost for your UK CGT liability.

NOTE * You can ask HMRC to review your valuation before submitting your tax return, by completing Form CG34 http://search2.hmrc.gov.uk/kb5/hmrc/forms/view.page?record=IFX-GtILkLw&formid=3168
Note HMRC's wording: "We use specialist valuers to value some assets, mainly shares, land, goodwill and works of art."

2. correct

supplemental
1. You can deduct the cost of selling fees.
You cannot deduct any overseas tax you paid.
You are (presumably) resident in the UK and therefore subject to UK tax on any gains you make worldwide. Only once you have worked out your UK tax can you then claim a credit against that tax for any you have paid abroad, provided that there is a double taxation treaty in place between Uk and the other country and that the treaty covers capital gains - you can research the relevant treaty details yourself http://www.hmrc.gov.uk/taxtreaties/in-force/index.htm

2. consult a professional art valuer, there are plenty of them around and then get HMRC to check it using the above form
http://lmgtfy.com/?q=art+valuers