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As predicted in the , the Paymaster General, Dawn Primarolo, confirmed that the derogation allowed to the United Kingdom under the 7th VAT Directive (1995) to charge a reduced rate of import VAT of 2.5 per cent has come to an end and this rate will now increase to 5 per cent, the minimum allowed throughout the EU.

However, at the same time she agreed to remove an import VAT anomaly unique to the UK which has been a thorn in the side of the contemporary art trade. Works of art created after 1973 have been subject to VAT at the full rate of 17.5 per cent on import. In future all works of art and collectors’ pieces will be subject to tax at the minimum rate of 5 per cent.

In a statement, the British Art Market Federation recognised that the Government had done what they could to ease the tax burden on the art market: “Naturally we are disappointed that the European Commission has ignored the evidence of its own recent survey and has not so far been persuaded to support the UK’s case for a general reduction of import VAT on works of art. We do, however, recognise the considerable effort the Government has been making to support the art market in this respect, and we very much welcome the decision to reduce import VAT on contemporary works of art and other items.

“This decision, together with the Government’s equally robust opposition to artist’s resale rights directive, will, we believe, enable us to maintain the UK’s competitive position in the international art market”