National Gallery acquires £11.6m Bellotto (ctd.)

August 28 2017

Image of National Gallery acquires £11.6m Bellotto (ctd.)

Picture: National Gallery

I wrote last week about the National Gallery’s successful attempt to acquire Bellotto’s View of Koenigstein Fortress from the North for £11.6m. I’ve now learnt that the Gallery’s fundraising effort was much more challenging (and commendable) than usual. The case highlights why we need to reform the arrangements surrounding the export and taxation of important works of art in Britain. (Warning, this post gets a bit technical.)

First, a quick recap. The painting belonged to the collection of the Earls of Derby. It was a ‘conditionally exempt’ painting, which meant that it had been exempted from death duties on the understanding that it wasn’t sold, and was accessible to the public for a number of days a year. The conditional exemption scheme is intended to help keep historic collections of pre-eminent artworks together. So if you inherit a collection of important pictures, which may have hung in the same setting for three centuries, you can keep them on your walls for you and others to enjoy. But if you ever decide to sell one of the pictures, then you are taxed the full rate. 

When a conditionally exempt work is to be sold, the owner is supposed to notify the government, through the Arts Council, that they intend to sell it. A guide price is suggested. This period, usually of three months, is intended to allow any interested museum to attempt to buy the work, and also to qualify for various tax incentives, including something known as the 'douceur'. This allows the museum to benefit from a discount on the painting, because the Treasury foregoes the tax due. In most cases, this equates to a 30% discount, that being the current rate of death duties plus the 'douceur' (but sometimes the discount can be as much as 80%). So the seller settles their tax liability, the museum gets a discount, and the taxpayer subsidises the museum’s acquisition. Everyone’s a winner.

But recent cases, including the Bellotto, have shown that there are a number of areas which need to be reviewed in this scheme. Strangely, the requirement to notify the government of an intention to sell is not compulsory. This means that important artworks can be sold under the noses of UK museums, who not only lose time to plan a fundraising campaign, but also lose the opportunity to benefit from the tax breaks. An added complication is when these important artworks are sold to an overseas buyer, bringing the export licence system into play.

We saw this with the Pontormo Portrait of a Man (above) sold in 2015 to a US collector for £30m while it was on loan to the National Gallery in London. In this case, the seller of the Pontormo (the Earl of Caledon, or his trustees) completed the sale to the US collector (Tom Hill), and therefore paid the tax to the Treasury. Furthermore, Mr Hill paid for the picture before an export licence was granted, when normally overseas buyers agree to buy important pictures in the UK subject to an export licence being granted. That way, the overseas buyer doesn’t take the risk of paying £xm for a painting which might then be held up in the system for up to a year as a British institution tries to ‘save’ it. At the time, Francis Russell of Christie’s (who had discovered the Pontormo) said (in The Guardian):

“No doubt the picture was sold furtively as the purchaser wished to ensure that it couldn’t be bought in a tax-efficient way by an institution here.”

In the case of the Bellotto, the sale (this time to a Chinese buyer, in a private treaty sale through Christie’s) was also completed prior to an export licence being granted. The tax was settled. And so the National Gallery had to raise the full £11.6m asking price, as they were now transacting with the new Chinese owner. 

When, last year, the National Gallery succeeded in raising the £30m necessary to try and buy the Pontormo from Mr Hill, the Treasury agreed to effectively refund the £19m of tax that the Earl of Caledon (or his trustees) had paid. However, that was a special one-off case, and it has been confirmed to me that this option was not available to the National Gallery for the Bellotto.

Now, I make no suggestion here that the Earl of Derby (or his trustees) were under any obligation to try and structure the sale of their property so as to maximise the ability of a UK museum to try and buy it. They were made an offer for the Bellotto, and accepted it (long after making the necessary notification of intention to sell in 2014) which is perfectly proper. It was not up to the Earl of Derby to suggest that the Chinese buyer shouldn’t pay for the painting before an export licence was granted.

I think the point here is that a museum's ability to save pictures for the nation should not be at the mercy of the decisions made by vendors, the trade, and buyers. Regular readers will know that I've long argued for the rights of the owners of paintings like this. But the way the system is currently designed creates an unnecessary point of conflict between museums, the trade, private owners, and the government. Therefore, I would suggest we need to reform the system to achieve the following:

  • First, the ability of a museum to qualify for an effective discount (through tax foregone by the Treasury) shouldn’t really depend on which point in the transaction the museum gets involved. If the Treasury felt able to refund the tax in the Pontormo case, they should be able to do it for all similar cases. This is just a matter of accounting.
  • Second, the ‘notification of intention to sell’ should be made compulsory.
  • Third, it is sometimes suggested that the ‘guide price’ at the point of a notification of intention to sell is set artificially high, to discourage museum bids (I should stress this was not the case with the Bellotto). Therefore, I would make an independent, third-party assessment of value a part of the compulsory notification of intention to sell process. Remember, these conditionally exempt artworks are already effectively part-owned by the state, and it is not unreasonable for the state (or state-owned museums) to play a slightly more pro-active role in their sale.
  • Fourth, as AHN has repeatedly suggested in the past, there should be a greater sanction for those overseas buyers who refuse to accept a UK museum’s matching offer. 

Finally, UK museums should not always leave these things so late! If a museum sees a painting and really thinks it is worthy of their collection, it doesn’t have to wait until there is a threat of export to acquire it. I suspect that in the vast majority of cases, their acquisitions will be cheaper. 

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