One-in-five of the wealthy collects fine art, according to a US Trust report. The wealthier one becomes the more they are inclined to invest in art and this trend is expected to continue as younger generations are handed the reigns and begin to form their own collections.
Over the past decade, the art industry has seen a growth rate of 212% and is quickly becoming an asset class to be reckoned with.
A report by Deloitte and Art Tactic estimates that $1.62trn in art and collectible wealth was held in 2016 by UHNW individuals and there will be an estimated $2.7trn by 2026. How these collections will be managed in tax and estate planning will have tremendous implications for collectors and their families as the greatest transfer of wealth takes place in history.
“With the search for higher returns on investments, and the need to diversify investment portfolios in times of market uncertainty, investors are considering alternative investment avenues, of which art is a class of growing interest. In addition, this is an investment that one can enjoy as it appreciates in value and attracts no taxes," says Tim Mertens, chairman of Sovereign Trust SA,
“Of course, collecting art is not for everyone, but those who are in the know or have an appreciation for art in whatever form could do worse than many of the other alternative investment classes out there such as private equity or hedge funds. Art is tangible and has more in common with the likes of property investment,” he adds.
A considerable advantage would be that If you invest in art and want to pass on a significant inheritance to your children, one does not have to pay capital gains tax (CGT) on the sale of works of art, provided that they have been purchased for personal use.
This means that you can leave the art to your children and they can sell them without having to pay CGT, says Mertens.
“Art is a big business all over the world – and although investing in art is not easy and can involve a high level of risk, what makes art fairs so attractive is that they provide collectors with a single point of access to a wide range of galleries that have the credentials and experience to profile artists with investment potential," Mertens says.
