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bigduckontax, Accountant
Category: Tax
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My mother gave me two pictures by LS Lowry in 2003. They were

Customer Question

My mother gave me two pictures by LS Lowry in 2003. They were bought by my late father in 1973 but, although we know where he got them from, that gallery no longer keeps the records for that long ago. My mother is still alive, and I assume that the pictures would have been hers until she gave them to me, as my father left all his good and chattels to her. We have now sold the pictures at auction for £260000. Much more than the estimate by the auctioneer - which was £40000. Who has to pay what tax? We don't know what my father paid for them, and my mother would not be able to pay any gift tax. Any thoughts?
Submitted: 2 years ago.
Category: Tax
Expert:  bigduckontax replied 2 years ago.
Hello, I am Keith, one of the experts on Just Answer, and pleased to be able to help you with your question. You have to pay Capital Gains Tax (CGT) on the gain made between the net selling price and the market value of the pictures as at the date of gift. This will be levied at 18% or 28% or a combination of the two rates depending on your income including the gain in the tax year of sale. You do have an Annual Exempt Amount (AEA) of 11.1K to offset this gain. Your mother would receive the paintings free of tax as they were an inter spousal transfer and thus outside the scope of CGT. Any Potentially Exempt Transfer (PET) pursuant to her gift to you is a dead duck as seven years have passed since the donation date. I do hope that my reply has shed some light on your position.
Customer: replied 2 years ago.
I did manage to understand most of that from looking at Google. My real problem is not knowing how to value at the date of gift If I look at the value in 2003 this would give the effect of inflation over that period. What is the HMRC liked it to except that estimated market value or would another Analysis be required?
Customer: replied 2 years ago.
I am sorry Keith. I am using the Apple dictation system and it is giving rise to gobbledygook. What I meant to say was if I look at the value of a pound in 2003 would that be sufficient for the HMRC to agree the market value at that time or would I have to try discover the value of the pictures at that time. The problem is no one knows the value unless an auction has taken place and a true market test has arisen. This is the real conundrum.
Expert:  bigduckontax replied 2 years ago.
Yes the 2003 value is a problem. HMRC might be prepared to accept a valuation by time using a steady drift upwards, or similar Loweries sold in that year. You may need to use a trusted local professional to fight your case on this. With a sale at 260K there is likely to be a lot of tax at stake and with the doubt as to the 2003 valuation is where a local expert's services would be of inestimable value. I doubt HMRC would accept an inflation calculated figure as there is so little correlation between art prices and the rate of inflation.
Customer: replied 2 years ago.
There is a website called Artprice, that tracks art prices of different painters and gives an index, going back to 2000. Would that be acceptable do you think? It is a real problem. As I mentioned the first auctioneers estimate was only £40000 when we asked to place them in auction in 2015! So it is all just speculation to say the least. In theory according to that auction house (Christies) the value would have been lower than that in 2003!
Expert:  bigduckontax replied 2 years ago.
Well in the immortal words of Bamber Gascoine it would be a good starter for ten! In view of your recent experience I would be inclined not to put a great deal of credence on the auction house's opinion. However Artprice provides a route to assess a possible 2003 value along the lines of 'similar Loweries' I mentioned in an earlier response. Personally I can't stand the artist, I am an impressionist lover.
Customer: replied 2 years ago.
Yes Keith. Someone must like them though! We were astonished. I will have a go at the Artprice option, but dread the ghastly endless letter toing and froing with the HMRC b......ds. Thanks for you help.
Expert:  bigduckontax replied 2 years ago.
I regret that it is a distinct possibility which is why I suggested an knowledgeable intermediary to negotiate with HMRC. Please be so kind as to rate me before you leave the Just Answer site.