The new tax law signed by American President Donald Trump in December 2017 just went into effect. Concurrently, French President Emmanuel Macron announced the end of the ISF (Taxes on high earners) and the beginning of a new tax system for the wealthiest. Regarding the Fine Arts market, both in France and in the United States, the wealthiest players of the market as well as the most recognized Artists seem to be favored. How does the Art world will be impacted on both sides of the Atlantic Ocean?
The new American tax law: the angels’ share for the wealthiest
The new American income tax, voted on December 22nd 2017, includes a 2.6% reduction for the wealthiest Americans. However, such a tax cut is to disappear in 2025. Nevertheless, it is “the high end of the art market—which includes the major auction houses, the larger well-known galleries, the main art fairs, the well-regarded advisors, and the favored market artists— [that] is supported primarily by the ultra-wealthy” says the Art advisor Todd Levin, of the Levin Art Group to the Art Newspaper.
As for the new Estate Tax, the “merely very rich”, meaning those whose estate is estimated at 22 million dollars and below, are less encouraged to reduce the size of their estates through donations for instance. As a result, medium sized museums and collections could be impacted. Also, the law limits the amount of state and local taxes paid per individual which is likely to make high taxes States to reduce their taxes which will consequently reduce their revenues. Therefore, the budget allocated to museums could drop.
From the ISF to the IFI in France: Artworks’ purchase encouraged
French President Emmanuel Macron promised he would put an end to the Tax on high-earners (ISF). It is now a done deal with the IFI, the Tax on Estate. Indeed, the goal is to tax the estate and stop taxing the movable heritage. As a result the idea is to encourage French people to invest in the economy through actions, obligations or life insurances subscriptions. It is also a discreet invitation for the tax-dodgers to come back. Regarding the act of purchasing Artworks whether it is from a company or an individual, is exempted of the new IFI which makes it neutral in terms of taxation. The purchased Artworks will form an artistic estate which can be transmitted to family descendents through donations or inheritance. Therefore, individuals will be able to avoid costly situations of undivided estates. Even though purchasing Artworks does not prevent from paying the VAT, a purchase of an Artwork that is worth less than 5000 Euros will be generate an exemption on the tax on the selling price. Over 5000 Euros, a flate-rate will be applied but a tax exemption will enable the buyer to get his/her money back after 22 years of ownership.
The big winners: the wealthiest and most recognized players of the Fine Arts market
From both sides of the Atlantic Ocean, the new tax laws strongly favor the wealthiest. Even though the act of purchasing Artworks, for individuals as well as businesses, remains encouraged, the wealthiest and most renowned players of the Fine Arts market are the ones who benefit the most from it. Indeed, the wealthiest make the Fine Arts market, the auction houses, the major Art fairs as well as the most recognized Artists on the market. However, collectors from “merely” rich classes are usually the ones who invest more in emerging Artists, dealing with galleries in development and donate to medium sized museums. Since they don’t benefit from significant additional tax cuts, they might invest less in the Fine Arts market. Art-Trope implements strategies and technological tools for the Artists in order to provide necessary and adapted services to the current Fine Arts market, develop an effective and low-cost career management while offering an international stable and durable visibility. Art-Trope is the unique accelerator of the global Fine Arts market by enabling collectors to invest in Artists who will last on the long term.
Read our article about the new museum Zeitz MOCAA in Cape Town here.