The precise shape and scope of the UK’s new post-Brexit import tax regimes remained unclear until the eleventh hour but the conclusion on Christmas Eve 2020 of a special trade agreement between the UK and the EU has provided greater clarity in certain respects and has also helped to confirm that the UK remains an attractive jurisdiction in terms of the basic import tax treatment of artworks (whether on a private or commercial basis).
Until 31 December 2020, the effective rate of UK import value added tax (‘VAT’) on imports of art from non-EU countries was usually 5%. This rate remains the same from 1 January 2021 and it will now usually apply to imports from the EU as well as other countries. There is generally no customs duty charged on imports of mainstream categories of art (eg original oil paintings or original pencil drawings) under EU customs laws and the UK’s own new customs law will usually follow the same approach.
Returned goods relief can be claimed on goods, including works of art, that are re-imported into the UK after having previously been exported, subject to certain conditions. The goods must be returned no later than 3 years after they were exported in order to be eligible for this relief. Before 31 December 2020, returned goods relief was not relevant to movements of art from the UK to an EU country by virtue of the fact that the initial outward movement from the UK and the corresponding return to the UK were both internal to what were then both elements of the EU Single Market.
There was initially some uncertainty as to the treatment that would be applied to goods, including art, which were removed to an EU country before 31 December 2020 and then returned to the UK at some time after 1 January 2021. However, HMRC’s most recent published guidance on re-importing goods states that any return of goods, including works of art, from an EU location by 31 December 2021 will be eligible for returned goods relief under the UK’s own new VAT and customs laws if the importer is able to demonstrate that the goods in question were previously in the UK at some point prior to 31 December 2020 (assuming that the general eligibility criteria for such relief are also established).
HMRC indicate that it will not be necessary to demonstrate the precise date of original removal from the UK to the EU, provided that it can be shown that the goods in question were in fact in the UK at some point before 31 December 2020. HMRC also state that goods located in the EU on 31 December 2020 will be eligible for relief on their return even if the normal 3-year time limit for re-importation has expired. This guidance relates only to Great Britain, as opposed to the UK as a whole, although goods directly entering Northern Ireland from the EU should still be treated as attracting Single Market treatment after 31 December 2020 and so specific import relief is unnecessary in that context.
Therefore, owners of artworks which are currently in the EU but that were located in the UK at some point before 31 December 2020 may take advantage of this special one-year time limit to re-import such items to the UK and claim returned goods relief until 31 December 2021. It is important that owners of art located in the EU review their current arrangements and ensure that they return any relevant artworks they wish to keep in the UK in the long term before 1 January 2022.
Under the UK’s new VAT and customs laws, the UK is still an attractive location for the importation of artworks for both private collectors and commercial importers who benefit from the UK’s relatively low import tax rate compared to many EU countries. Commercial importers such as art dealers or gallery owners who import artworks to the UK, whether as an owner or agent, may bring artworks to the UK on a ‘tax-suspended’ basis in the first instance and then account for any relevant import taxes at a later point if the artworks are then sold. Any VAT cost passed on to a customer would typically be only 5% rather than the 20% usually charged on UK sales of goods in a commercial context.
The EU is now, in principle, no different from a country such as the USA or Australia when considered from a UK import / export perspective. Works of art which are exported to an EU country from the UK from 1 January 2021 will potentially be subject to EU import-related VAT charges, the rate of which will depend on the EU country of arrival and any available reliefs or deferrals. The UK’s returned goods relief regime would then potentially apply to works of art which are subsequently returned to the UK within 3 years.
It is important to note that temporary movements of artworks from EU countries to the UK (or, at least, Great Britain) will no longer automatically be outside the scope of UK import tax regimes just because the movement happens to be temporary. However, the UK has effectively replicated all the key reliefs and deferrals available under EU import tax laws in its own new import tax laws, and these provisions will generally now apply to goods imported into the UK from both EU and non-EU sources. The temporary entry of artworks to the UK from an EU source for purposes such as restoration or technical evaluation will usually benefit from some form of import tax relief. However, it is important to take specific advice to ensure that a relevant relief is in fact available before relying on it. Satisfaction of abstract technical criteria will not always suffice to protect an importer (whether they are a private party or a commercial party) from exposure to import taxes. Import reliefs are not usually automatic, which means that they must be claimed in the appropriate manner and at the appropriate time.