Eleni Polycarpou and Giulia Trojano consider the tax and inheritance issues involved in handling estates rich in artworks, and look to the future and the rise of digital art 

Whenever anyone mentions art law, we generally think about disputes over ownership and authenticity in art. These disputes are also more common than you may think, and some large players (Sotheby’s and Christie’s, for example) increasingly find themselves at the centre of unwelcome publicity as claims continue to be brought in the courts.

While these claims concern buyers, sellers, dealers and auction houses alike, and can be costly and cause reputational damage, they are not the only legal issues in relation to artists and artworks.

Executors of estates of an artist or a collector often face complications when seeking to value works and pay the appropriate tax on their sale or gifting. While several schemes, such as the conditional exemption scheme or the acceptance in lieu scheme, aim to facilitate this, the act of gifting an artwork remains a grey area, and one in which one should tread carefully.

This article gives a brief overview of ownership and authenticity issues, taxation matters, and the evolution of these with the rise of digital and online art. It will conclude with an analysis of blockchain technology and the solutions it may offer.

Ownership and authenticity issues

Restitution claims are the typical cases one associates with ownership issues in the art world. High-profile cases, such as the one concerning Maria Altmann and the Bloch-Bauer family, have been discussed at length in books and even turned into feature films. But such claims are far more common than one might expect.

Buyers and sellers are increasingly aware of restitution claims and will demand due diligence as to the provenance of artworks 

Only recently, in June, Christie’s was sued by French dealer Alain Dreyfus for not delving deeper into the provenance of Alfred Sisley’s ‘Premier jour de printemps à Moret’ (‘First Day of Spring in Moret’) (1889). It emerged that the painting had been seized by the Nazis. Dreyfus argued that Christie’s should have been more diligent in citing a provenance gap between 1923 and 1972, when it was sold by Wildenstein & Co in Paris. While in the circumstances, Dreyfus is willing to return the painting to the rightful heir, and is ‘merely’ seeking reimbursement from Christie’s, estates, auction houses, buyers and dealers may face far lengthier and more complex matters.

Auction houses are under an obligation to conduct thorough due diligence. Buyers and sellers will be increasingly aware of restitution claims and will thus demand that such due diligence be conducted, particularly by such highly regarded auction houses. Liaising with organisations such as the Art Loss Register is also key, as they have a network of similar organisations globally and can provide an indication as to whether a work of art may be subject to an ownership claim.

Tax implications faced by estates

When administering an estate, an executor or trustee will need to ensure that the value of its assets is preserved and possibly enhanced. If the estate is rich in art, an executor may need to sell one or more of the works in order to meet the estate’s tax liabilities.

Under UK law, tax liability in these circumstances may be mitigated through a series of schemes.

Conditional exemption scheme

This will allow works of art to be exempt from inheritance tax (IHT) and capital gains tax (CGT) when they pass to a new owner, as a result of either death or gifting. The work will need to be of artistic interest and the new owner will need to undertake to look after the work, allow the general public to view it, and maintain it in the UK, failing which, tax will need to be paid, as the exemption will be withdrawn.

Acceptance in lieu (AIL) scheme

This allows taxpayers to transfer a pre-eminent work of art into public ownership in lieu of paying the whole or part of their IHT bill. The AIL panel will assess whether the work of art is pre-eminent, and assess its open market value.

Cultural gift scheme

A relatively new scheme, this allows UK taxpayers to receive a tax reduction based on a percentage of the value of the gift being made. Again, the AIL panel will assess whether the work in question is pre-eminent, and will match it with possible recipients (museums or institutions, for example). The taxes eligible for reduction include 30 per cent of the valued object where the liability is to income tax and CGT, which can be spread across five years for individuals, or 20 per cent of the valued object for companies liable to corporation tax (here, it will not be possible to spread the offset).

It should be noted that offerors for both the AIL scheme and the cultural gift scheme will need to present to the Arts Council a valuation and justification of the valuation, as well as high resolution images and explanations as to why the work is considered pre-eminent. It is therefore imperative for owners of such works to maintain them in good condition and conduct thorough valuations at regular intervals. Loaning the works to exhibitions could also facilitate justifying their artistic pre-eminence.

Art inheritance issues

While the above schemes are relatively straightforward, of more concern to executors are the pitfalls of a gift. By way of example, an owner of a work of art decides to gift the work to their child. The child continues to live in the family home, so the work does not move location. This would be considered a gift with reservation of benefit, as no consideration has passed, so the original owner will still be liable to pay tax on the work.

To avoid this, donors must ensure that the transaction happens at arm’s length. In the past, HM Revenue & Customs (HMRC) has accepted as valid consideration (using the same example above) the donor paying one per cent of the value of the work as ‘rent’ per month. More recently, HMRC has indicated that the percentage required might be as high as 10 per cent. Issues around paying for insurance of the work may complicate the gift further. Clients or executors should be encouraged to set out maintenance, insurance and rent arrangements in writing.

To add to the issues, while HMRC seems to suggest that 10 per cent of the market value should be paid as monthly rent, often the works will have been in private hands and therefore have never been tested on the open market. Again, it is important for owners and executors to have updated valuations and, where appropriate, comparable work estimates in order to justify the arrangements between them and the donee. Both donor and donee should be independently advised when negotiating said arrangements.

Following the artist’s death, an estate may face the dilemma of whether to sell, donate or merely keep posthumous works as chattels

Executors of an artist’s estate may be concerned with what to do with posthumous works. Following the artist’s death, an estate may face the dilemma of whether to sell posthumous works, donate them, or merely keep them as chattels. It came as a surprise to many when the Roy Lichtenstein estate voluntarily decided to start winding down by donating works to the Whitney Museum of Modern Art and the Smithsonian – an excellent example of why executors of prominent and well-established artists still need to consider their longevity and long-term strategy.

Minimalist artist Dan Flavin, who died in 1996, left hundreds of unfinished editions of his works, accompanied by signed certificates. He did not, however, make any statements in his will as to their future status. (In contrast, Auguste Rodin was far more prescriptive: executors could cast works from his moulds for the benefit of museums or for public purchase.) Flavin’s son eventually decided to sell some of the unfinished editions by granting estate certificates of authenticity as opposed to lifetime certificates, with David Zwirner acting as the gallery. Unfortunately, issues arose with the Inland Revenue Service (IRS), as the works had not originally been included in Flavin’s estate when calculating his estate tax. Flavin’s original dealers were equally surprised, as they had originally served on a panel for the IRS aimed at determining the value and extent of Flavin’s estate, and had both noted that no posthumous works would be produced. The unfinished editions were later estimated to be worth $70m, on which no estate tax had been paid.

While the estimate provided by the New York Times may have not taken into account the difference in value between a posthumous edition and a lifetime work (although these differences have proven negligible for other artists), estates grappling with similar dilemmas should be proactive about informing HMRC (or the IRS) when contemplating the sale of posthumous work.

Digital art and its platforms – solution or complication?

Ownership and authenticity issues have further evolved with the rise in popularity of online or digital art.

Digital art, defined (for these purposes) as an intangible work of art, has suffered from several issues since its inception. As with other intangibles or digital products (eg DVDs), it is easily subject to being copied, pirated and redistributed online with little opportunity for quick enforcement, thereby diluting the value of the work. Although copyright protections apply to it and are now more readily enforceable, with engines such as Google acting as policing authorities, for a while digital art failed to attract the general public.

While certain galleries have sought to push digital art, it is still largely vulnerable to being screenshot, lost or otherwise damaged. From a buyer’s point of view, there is also an important concern regarding paying a price (albeit a more modest one) for a digital work where it can be displayed less easily.

Digital ownership of art can come in many forms. An artist may create a single unique digital work (be it a video, an image or a virtual reality (VR) game) or choose to make a series of editions (eg five copies of the work). These will then be transferred to the owner, who can elect what to do with the work. Some companies have created packages where customers can buy both the digital artwork and a physical frame with an LCD screen to display it. Institutionally, VR and digital works are primarily acquired by large museums and galleries, as digital art requires investment in high-end technology. Acute Art’s collaborations with Anish Kapoor, Marina Abramovic and Christo, as well as its recent nomination of Stockholm’s Moderna Museet’s Daniel Birnbaum as artistic director, exemplify the traction that augmented reality and VR are currently gaining in the art world.

Artwork - gift in lieu of tax or sell?

© omadoig@btinternet.com

As such, it is likely that collectors and estates will see an increase in digital or online art ownership. Daata Editions is one of the key players in the field, partnering with the Hayward Gallery in London and others. Buyers of digital works through the platform acquire a digital file, which can be kept online or downloaded, along with a certificate of authenticity signed and numbered by the artist. While digital art is often perceived to be confusing, it operates under standard copyright law. Therefore, buyers are unrestricted in exhibiting their works in private, but should they elect to showcase these in a gallery or for commercial purposes, they would need to obtain the artist’s permission, in the form of a licence.

Digital editions can be resold through the specific platforms offered to buyers. Once the transfer takes place, new certificates of authenticity are issued noting the date of the transfer and the related parties. Following the transfer, any copies of the edition in the old owner’s possession will no longer carry value. Again, enforceability might be harder to ensure, but should an old owner then proceed to license the work they no longer have rights over, copyright claims can be issued. In addition, any gallery or purchaser of online / digital art is advised to communicate directly with the platform granting certificates of authenticity, to confirm ownership.

Further, the rise of blockchain technology has facilitated both the ownership and commerce of digital art and assets – although this solution is not, on its own, without issues.

Digital art is easily subject to being copied, pirated and redistributed online

Several companies have sought to develop strategies that may assist in the resolution of ownership and authenticity issues. Among these we find Verisart, founded by Robert Norton. Living artists can produce work with a certificate, which will be added to the blockchain. This ensures that, following their death, or in any dispute concerning authenticity and/or ownership, blockchain technology can easily illustrate whether the work is authentic, and who owns it. Yet, in June, Terence Eden, open standards lead at the Government Digital Service, tried to fool Verisart by uploading a photo of the Mona Lisa as evidence of him painting it. He subsequently obtained a certificate of authenticity, now engrained within the blockchain. While this illustrated flaws within Verisart’s current platform, it should be noted that the ease with which one can add artworks to the blockchain would aid less-established artists and galleries, as the process is relatively simple.

One of the key difficulties with blockchain technology in the arts is, as illustrated, that there are few anti-fraud checks. In addition, once a transaction is ingrained in the chain, it cannot be easily reverted. This would cause issues should an artist want to produce several editions, for example of digital works. FRES Edition has sought to resolve this by envisaging galleries, artists, auction houses etc as blockchain wallets, with each artist’s artwork being generated specifically by their artist wallet. In effect, so long as a buyer can confirm that the data is coming from a gallery or auction house, then the print(s) can be verified in the same way that it would be if a buyer asked an auction house for proof of ownership and authentication.


Executors and owners of art should, as always, be prudent in managing and dealing with the works. Artists and galleries should be encouraged to verify authenticity from the very start, perhaps even by considering adding works to blockchain platforms, as this will prevent estates from facing such claims in the future.

Collectors should not fear digital or online assets, as their consolidation will undoubtedly create more legal certainty in the near future; although, save for the fact that there is no legislation currently dealing specifically with enforcement issues, copyright law will apply and has been applied by the courts.

If you want to know more…

… about the digital art market, read the Hiscox Online Art Trade Report 2018, which discusses digital art platform trends, galleries and online sales, and emerging risks and opportunities, including blockchain and cybercrime.