Don’t pin hopes on SIPPs for sales boom

THE personal allowance cap means next year’s pension investment rule change is unlikely to result in a surge of buying at the top end of the art and antiques market.

However, the likely effect on the middle market remains unclear and trade professionals may well benefit from the increasing demand for expert advice when it comes to investing in the sector.

Pierre Valentin, an art and cultural objects specialist solicitor with Withers, presented this picture of mixed fortunes at last week’s LAPADA law seminar at the Institute of Materials in London.

While he also talked on the legal implications of valuations and the prevention of money laundering, it was his findings on Self Investment Pension Plans (SIPPs) that drew most attention.

The rules are due to change on April 6 next year, with individuals supposedly winning greater control over how their pension fund is invested. But Mr Valentin explained that while some options under the new rules were attractive, the regulations were also complex and remain unclear in many ways.

Hopes that, with the relaxing of rules on investment in works of art, many millions would pour into industry coffers could well be dashed. This is because the maximum any individual can invest in their pension fund over its lifetime without attracting punitive tax rates is £1.5m, and fund trustees are unlikely to put more than 20 per cent of that pot into any single investment sector. In other words, the most that the art and antiques industry could expect from a single pension fund over its lifetime is £300,000.

Investment in art and antiques through a pension fund brings other stings in the tail too. An individual may invest in a painting through their pension fund, but they may not hang it on their wall without paying either a rent to the fund or tax to the Treasury. In fact, they will still be liable for that rent or tax even if they lock the painting up in a bank vault in their own name. The Inland Revenue demands that the indvidual concerned must have no access to the benefit, ie the painting, to be exempt from tax.

However, the renting option has its advantages, explained Mr Valentin. As the rent is paid to the fund, and the fund will eventually benefit the individual renting the work, it is in effect an enforced savings scheme. This option could also prove particularly attractive to those investing in second homes.

Investments in the fund also attract government contributions. Those paying income tax at the basic rate will attract a 22 per cent contribution on every pound they invest, while higher rate tax payers will get a 40 per cent contribution.

A further benefit is that there is no capital gains tax or income tax to pay on the sale of assets held by the SIPP, although transferring current assets, such as an art collection, to a SIPP will attract capital gains tax. This will prevent owners of art collections from transferring works to SIPPs prior to disposal in order to avoid capital gains.

Mr Valentin set out a number of other provisions in the new regulations, but said that the Government would need to make the details of all aspects of the changes much clearer before their introduction.

The Financial Services Authority rules on giving art investment advice are comparatively loose at the moment, he advised, which could mean more work for the industry. Professionals could benefit by selling artworks to SIPPs, buying and selling on their behalf, valuing SIPP collections and assessing market rent for objects held by SIPPs.

It is possible, Mr Valentin also advised, that the rules could be tightened later, making FSA registration essential for those wishing to advise on SIPP investments.

He will be keeping a close eye on developments over the coming months.