Saturday, 21 August 2010

The tax situation (in some detail).

Since the main reason to write this blog was in order to help anyone who finds themselves in the position that I was placed in, namely an Executor of the Estate of an artist, it's worth me writing at some length about the current situation with regard to Estate Duty. I went back to the early entries of the blog and realised that I never really discussed this in much detail. But now, 18 months on, HM Revenue and Customs are asking us for clarification it's worth saying something about the background and circumstances that has produced this situation. 

a) Dave Pearson asked me to be joint Executor to his will, with a particular role in looking after his artwork, and in that role I supported his son Christopher in negotiating the probate arrangements around the valuation of the artwork left by his father. In Dave's case this was difficult as he simply didn't sell much work during his lifetime, and had not sold anything for several years before his death. Probate, by the way, is a document that enables a person, usually an executor, to deal with someone's estate, between their death and the acceptance in law of the settlement.

I researched and explained the inheritance tax situation as I understood it to Chris, and I made a real effort to seek expert valuation of the artwork. You will appreciate that this was difficult as the artwork in the studio had not been touched for many years and the building itself was in a very poor state of repair, plus the artwork was distributed throughout the building in a chaotic way.

b) Dave's Estate included a studio, various 'chattels' (furniture and such like) and some money in the bank, as well as his artwork. The first things were relatively easy to value, and the total value of these came under the threshold for Dave's estate to need to pay Estate Duty. 

Chris and I  realised the importance of getting the work valued and spent several days on the internet and telephone trying to get expert opinion. Walton and Walton, auctioneers and valuers, of Burnley finally agreed to meet with me and asked me to bring a selection of Dave Pearson's artwork to their salesroom. Their website describes them as offering services for 'Professional Valuations for Probate'. I asked Chris Pearson to come along to this meeting and we had a consultation lasting about half an hour with their expert. He explained the difficulty of valuing the work; and given that there had been no history of sales of Dave Pearson's work for the past 5 years or more we were told that there was no basis to value the work beyond a nominal value. I asked for a written valuation but they declined to provide this, saying again that there was no basis or history on which to base a valuation and repeated their advice to put a nominal value on the artwork, which they felt was a true reflection of the value at the time of Dave Pearson's death.

To be certain about the issue I continued to research this, and spoke with several other valuers over the telephone. None would even meet with me, and the repeated message was that as there was no history of sales of the work for a period of many years, and that as Dave Pearson was not a 'well-known', or even a 'known' artist, any valuation could only be nominal.

c) I passed this information on to Chris Pearson and he met with his own solicitor, and at that point they made a valuation of the artwork portion of the estate in line with the advice that it only had a nominal value. This then became part of the valuation of the Estate.  

d) At that point we set up the Trust and, of course, this blog explains and explores how this was done. Then a few months ago the tabloid press got hold of a story that had started with a local news report - it was along the lines of the artwork being worth a lot of money ('millions' were quoted) and played heavily on the idea that Dave Pearson had been a reclusive eccentric; in other words a modern version of the 'miser's gold' story. Of course all this was very, very far from the truth, but then the press isn't very interested at getting at the truth, and clearly they felt it made a good story as it appeared in several national newspapers.

e) So the current situation with regard to HM Revenue is that they are seeking an explanation as to the gap between a probate valuation, given late in 2008, of Dave Pearson's artwork that is 'nominal' (i.e. probably between £3,000 and £5,000) and press reports in 2010 of the work being worth 'millions'. 

f) The key thing about probate valuation of an estate is that it's the value at the point of death. A subsequent change in value is irrelevant with regard to assessing probate. As anyone following this blog will know the whole point of setting up the Dave Pearson Trust and the work we've undertaken over the past 18 months has been to increase awareness of Dave's legacy and, as a natural development of this, his works have increased in value.  All sales of work since probate have been properly recorded, and in a period of 21 months the Trust has sold just under £50,000 worth of his work. We are completely transparent about this - in fact it's a direct by-product of our aims and objectives.  We met with our solicitor last month to discuss the tax implications of these sales, and that is currently in hand. 

g) Dave Pearson's case is probably unusual although I'm certain that it won't be unique. Clearly anyone undertaking this kind of work has to be very careful to avoid the charge that they had purposely under-valued the work of an artist in order to avoid death duties. In the case of an artist who sells their work on a regular basis this would be relatively easy to prove one way or another. For an artist who hardly sold their work at all it can easily lead to the situation we're currently having to deal with.

Thursday, 19 August 2010

The taxman cometh

On return from holiday (hence the gap in these blog entries) I found a letter waiting for me from Woodcocks, our solicitor, and assumed it to be about the meeting we had last month to review the Trusts tax position. In fact events have overtaken us as Chris Pearson has been asked by HM Revenue and Customs to explain the gap between the nominal value inserted in the probate papers against the value reported in the media of Dave's estate. Go back a few months and we had frankly ridiculous and inflated reports in the press about the value of the work.

In the letter details were asked for about any meetings we had with probate valuers regards to valuation of the work that was left on Dave's death, and so on. This will mean going over things that happened two years ago; it's precisely the situation I wanted to avoid by talking with our solicitor last month.

Anyway, I'm certain that we have done all the right things, and correctly. One bonus is that we have this blog - documenting the process and the work we've put in to develop Dave's reputation! 

But anyway,  for now there's another weeks holiday to have and then buckle down to sorting this out and, hopefully, satisfying the tax authorities.