The UK’s art market is now feeling the effects of post-Brexit laws that handicap domestic and international trading activities, chiefly involving physical shipping of artwork. In 2020 the EU was the second largest global art market behind the US, and the UK was the EU’s pre-eminent art market. In 2021 the UK’s sole share was the third largest behind the US and Greater China; the EU’s share was fourth. The UK’s post-Brexit decline to third place has doubtless been influenced by consequential changes to import and export tax laws, and customs and border regulations.
The UK’s EU art market position derived largely from benefits of operating within the EU’s standardised framework of laws creating a customs and market union. By such laws EU countries agree to act in concert to guarantee free movement of people, goods, services and capital within the EU’s internal single market. This legal framework results in there being no import tax payable for physical movement of artwork between countries within the EU’s territory; and in there being import tax payable for shipping artwork into the EU’s territory. For example: EU import tax is paid only once, to the EU country in which the artwork first arrives, but no further tax is payable for physical movement around the other EU countries.
This tax framework was established over two decades ago, when the UK was an EU country, and soon resulted in the UK as a whole – London in particular – becoming the ‘go-to’ entrepôt hub to which artworks were first imported into the EU from the rest of the world for collection and distribution to further EU countries. The UK always adopted the minimum EU import tax rate of 5% (of the market value of the artwork plus the cost of packaging, transport, and transit insurance), whereas other EU countries chose to adopt higher EU import tax rates. This meant, for example, that a work located in the US destined for Denmark could first enter the EU at London (paying 5% EU import tax), then be re-transported tax-free across EU countries to Denmark – thereby avoiding Denmark’s then EU import tax rate of 25%, which would have been payable if the artwork had been sent from the US directly to Denmark.
Post-Brexit, the UK is outside the EU for trading purposes (save for Northern Ireland’s special arrangements avoiding a hard border with the Republic of Ireland). Non-EU-based art market traders (now including those UK-based) shipping artwork into the EU understandably choose to first land artwork in an EU country operating low EU import tax rates. Following Brexit, many EU countries hoped to replace the UK as the entrepôt hub by reducing their EU import tax rates, including: 5% Cyprus and Malta, 5.5% France, 6% Belgium and Portugal, 7% Germany, 8% Luxembourg and Poland, 9% Netherlands, 9.5% Slovenia, 10% Finland and Italy and Spain.
Moreover, UK-based art traders shipping artwork into the EU post-Brexit now pay EU import tax at the rate operating in the first EU country of arrival, ranging from 12% in Sweden to 25% in Croatia.
The immediate loss to the UK of its import tax advantages may have further deleterious effects on the UK’s position as a prominent global art marketplace. For example, the latest annual art market report from Art Basel with UBS shows that the UK slipped from having the second highest global art market share in 2020 (20%) to third place (17%) in 2021 after Greater China (20%) and the US (43%). This 3% loss of the UK’s art market global share to 17% in 2021 is its lowest share this decade, which may perhaps have gone to the USA (up by 1%) and the EU (up by 2%); and could signal the beginning of a downward trend – for which there is a worryingly similar precedent.
Despite the wreckage of two recent world wars, in the 1950s Paris remained the cultural capital of the art world. Paris-based Hôtel Drouot was the pre-eminent art auction business not only in France but also worldwide, achieving annual sales exceeding the two other leading art market competitors, Sotheby’s and Christie’s. In the 1960s France enacted new laws that heavily taxed art sales there, which doubtless drove art market practitioners to switch their trade to the UK and US, London and New York in particular.
New York’s rise over subsequent decades to become the leading worldwide art market capital city benefitted not only from the art market decline of Paris, but also from decades-long US federal laws exempting art from import taxes. Many UK-based art market practitioners advocate that the UK’s current art import tax should likewise be abolished to give the UK parity with the US. The British Art Market Federation, for example, argues that ‘imports are the absolute life blood of an entrepôt market like ours. Without attracting art for sales from abroad, we cannot maintain our status’, and points out that art import tax ‘raises very little revenue’ but is ‘a grit in the machinery of the London art market’ that has ‘impeded people wanting to use London and has really been an attraction for works going to New York and China.’
UK-based art market analyst Ivan Macquisten says that ‘dealers in the US, for instance … have just sat on their hands’ and pointed out that ‘red tape at [UK] ports continues to be a challenge’. Leading UK-based art lawyer Pierre Valentin, however, noted the political quandary: ‘I cannot see how, with inflation and energy bills out of control, the government can be seen to waive tax for the elite art collectors and art businesses.’
Some UK art market practitioners hope that the establishment of six tax-free ports around the UK – which the current government says is now possible because of post-Brexit freedom – could stimulate incoming art trade. But UK freeports were always possible pre-Brexit (80 such ports operate around the EU). During recent consultations about new freeports, UK government made it clear that freeports would ‘explicitly not be used’ for storing and trading valuable luxury assets including art because ‘they didn’t want to be seen as a tax haven for hidden assets post-Brexit.’
A further possible impact on the UK art market is the significant increase in online trading activity, including live-streaming of auctions. During the first Covid restrictions year of 2020, the art world generally pivoted towards significant use of online communications. New and different online ways of working have been introduced and are fast developing, facilitating worldwide trading without the need for prior physical movement of artwork across tax borders to points of sale – thereby affording traders wider opportunities for legitimate import tax mitigation or avoidance.
© Henry Lydiate 2022