Specific taxation charges and exemptions arise when individuals acquire or sell art. VAT and Capital Gains Tax (CGT) are levied at different rates, according to the tax status of the purchaser and vendor.
For example, gains made on the disposal of paintings or sculpture worth more than £2,000 are subject to CGT at 20 per cent.
Ms Susan O'Donnell, a tax director at accounting firm PricewaterhouseCoopers, said this tax is waived if work valued at more than £25,000 is loaned to a gallery approved by the Revenue Commissioners for public display for a period of six years.
Marginal relief is available, meaning that the CGT payable will not exceed 50 per cent of the sum received over £2,000.
For example, if a sale yields £2,200 and the picture originally cost £1,000, the nominal CGT charge is £240 (20 per cent of £1,200). However, the yield greater than £2,000 is £200 - 50 per cent of this is £100, so the CGT payable will not exceed this.
Ms O'Donnell said specialised tax advice should be sought before making an investment in art.
If work valued at more than £75,000 is donated to the National Gallery, its value is available as a tax credit against all outstanding taxes except VAT.
Acquisitions and disposals by companies are subject to different taxation structures.
When a private individual, not registered for VAT, purchases work directly from an artist who is registered for VAT, the VAT rate payable is 12.5 per cent on the purchase price.
If the individual purchases from a gallery - most of whom work on a commission basis - the VAT charge is 21 per cent on the commission. Commission rates vary from 40-60 per cent of the purchase price, according to the executive director of the Artists' Association of Ireland, Ms Stella Coffey.
Individuals pay VAT at 21 per cent of the auctioneer's commission when purchasing work at auction.
Where a company purchases art for its directors or workers, its value will be subject to income tax and PRSI levies for the beneficiaries, because the transaction is treated as salary. The employer must also pay PRSI on the value of the work.
If an employer purchases art and loans it to directors or workers, while retaining ownership, this is treated as benefit-in-kind (BIK) for tax purposes. The director or worker will be subject to income tax on the BIK, though there is no PRSI levy for the worker or company.
