Trustees looking to invest in these asset types should take expert advice, as these assets do not produce any income, price movements are based solely on demand and supply. This means that there can be big upward and downward price swings as certain types come into, and out of, favour. The industry is unregulated which means that there is nothing like the Financial Services Compensation Scheme to fall back on if it all goes wrong, and the market is illiquid so they may not be able to sell when they want to at the price they want.
Tax treatment will vary depending on whether the item was purchased, received as a gift or inherited; also on whether the item is considered as general personal property or as part of a collection.
Specific rules apply to antiques, works of art, stamps, coins, wine, certain gems and metals and other collectibles. Gains from the sale of these items held for more than one year are taxed at 28%. Art is subject to income tax at individual rates if held for less than a year, is owned by the artist or was a gift from the artist, is dealer inventory or would produce a capital loss if sold.
The different tax treatment for collectors and artists means that planning for each has many potential differences.
When planning to transfer a collection it is important to consider options and assess the most tax efficient strategy, considering income tax, gift tax and IHT consequences. Some collectors may wish to make charitable gifts of art, and certain tax deductions may be available for gifts made during life as well as on death, although the rules on these are complex.
Collections are usually built up by people because they enjoy the ownership of the items and not for tax purposes, and the transferor of the collection needs to consider whether the collection is being passed to someone who will derive pleasure from owning it, rather than finding it an onerous obligation, and also the recipient must be in a position to afford the cost of maintenance of the collection.