Realign the portrait
Penetrated by social media, new talent and invasive transparency pressures, the art industry is being reshaped by completely new hands
According to the recent TEFAF Art Market Report 20161, the global art market achieved total sales of $63.8 billion in 2015, having roughly doubled in value over the past 10 years.
Although some may be concerned about last year's slight decline in art sales, there is no doubt that investing in art is an ever-attractive prospect. However, as the art world is changing, so are the challenges that both owners and sellers of art face.
A simple change is in the increased number of artists, many of whom may have been relatively unknown until recently. This has made it harder to validate the provenance of the work. In addition, the art market has traditionally valued confidentiality yet it is facing great pressure to become more transparent in the face of increasing fraud. Development in international tax law, including the introduction of the common reporting standard, means that additional disclosures may be forced upon it.
As all industries face increased regulation, it is unlikely that the art world will be exempt. The Consumer Rights Act 2015 is just one example of the list of statutes now governing the trade. It is so far unclear exactly what effect this will have on the marketplace, but there are murmurings of online-only auctions becoming the norm.
Brexit, the big political issue of 2016, is likely to have a huge impact on the market if there is a vote to leave. There are a number of reasons for this, for example, the movement of art collections into the EU as part of a change in normal residence should be free of VAT.
As it stands, several conditions have to be satisfied to qualify for this relief. Therefore an incorrect analysis could prove to be a costly mistake. Yet if Britain was no longer in the EU, the situation could be very different.
The recent budget brings several changes that will affect the art market, including changes to the old rules on estate duty. Effective immediately (from the day of the budget), HMRC will now be able to choose whether to charge estate duty or inheritance tax on some objects when sold on death, which were previously granted estate duty exemption.
Commercially, transactions involving art must always be carefully considered. For example, there are wide ranging options encompassing auction consignments, loan and security arrangements with institutions and galleries, escrow agreements and joint ventures, to name but a few.
Private sales are always complex and in an increasingly digital age, social media is being seen as a genuine channel for selling mainstream art products. Instagram, with 300m users and a growing demographic in the 40-60 year old range, is a particular area being targeted by art marketers, as a vehicle for 'social shopping' of arts and antiques.
There are a number of consistent challenges which must be considered when investment is made in art. These range from tax matters of conditional exemption to cultural gifts schemes, acceptance in lieu, export licences, insurance and indemnity arrangements and issues around protecting investments.
In this rapidly changing space, profitability is likely to be a major issue for the world's leading auction rooms, with many favouring increasingly curated sale catalogues as a way to lure vendors.
Concerns over tax and succession planning, the insurance of collections and the international movement of art works are likely to increase.
However, the challenges posed by the changing nature of the art market are all able to be navigated when considered appropriately. n
See the TEFAF Art Market Report 2016 here: https://www.tefaf.com/artmarketreport
Suzanne Marriott is a partner at Charles Russell Speechlys