Selling a work of art : which tax regime to choose?

This case study explains how Mr. Rothko will save 30% tax on the sale of his work of art.

Selling a work of art: the « tax duel »

In November 2000, Mr. Rothko bought a Picasso drawing, l’Homme à la Pipe, with a net value of 1 million euros. In October 2018, he resold the drawing at Christie’s for 2.5 million euros.

We also know that he received a 10% sales tax on the sale price, and that he has his purchase invoice.

He consults Culture Patrimoine to find out how the capital gain will be taxed.

There are two possibilities when selling a work of art.

• Option 1: the individual has proof of the work’s origin
• Option 2: The individual does not have proof of the work’s origin.

So, the first question to ask before considering taxation on the sale of a work of art is that of origin. Depending on the proof of initial ownership (purchase invoice or notary’s certificate), Mr. Rothko will have two options :

• If he has proof, he has two options:
  • Tax package
  • Capital gains tax with tax reduction
• If he doesn’t have the proof, he has only one option:
  • Tax package

Finally, if Mr. Rothko has no proof of the origin of his work, he has no choice to make! However, if he does have proof, Mr. Rothko will have to choose one of the two options.

=>Tax analysis is a strategic choice for the sale of an exceptional property !

Example

TWO OPTIONS

So, you will find the example below :

• Tax package : 6.5% * 2.5 million * 6.5% => 162 500€ tax charge
• Capital gains regime with tax reduction :
  • Original price of the work: 1 000 000€
  • Sale price excluding VAT: 2 273 000€
  • 2, 273 Millions – 1 Millions : 1 273 000€
  • Capital gain: 1 273,000€.
  • October 2018 – November 2000 : 15-year holding period
  • 15-year allowance x 5% = 75%.
  • 1 273 000€ x 75% = 318 000€ taxable
  • 318 000€ x 36.2% => 115 000€ tax charge

We can see that by opting for the capital gains tax with tax reduction, Mr. Rothko gains 47 000€, or -30% on the tax bill.

Our advice for Monsieur Rothko

Beware, sales of works of art can have an effect on the wealth tax mechanism. Therefore, if you are concerned by the wealth tax mechanism, it’s necessary to take stock of all your assets and not choose the capital gains option.

Every situation is different, and all parameters need to be taken into account.

Culture Patrimoine : Your contact

For 20 years, Culture Patrimoine’s mission has been to save its clients both time and money by providing great family office services.

Culture Patrimoine is an independent company among the leaders in its market:
• Customer satisfaction rate of 95% (August 2021)
• ISO 22222 by AFNOR (4 companies out of 5800 in November 2013)
• Speaker at Francis Lefebvre Formation and the groupe Revue Fiduciaire since 2006
• +300 million euros of financial assets under management (November 2021)

The family office services provided by Culture Patrimoine are a true 360° view of all related themes (protection, finance, taxation, real estate and legal).
This support comes in the long run and starts with a consulting period, followed by implementation when appropriate.