How does buying stuff like paintings and then donating them benefit rich people with “tax breaks”?

Question

Just saw a tiktok saying that art investment tax loopholes are very easy and common.

I don’t understand how it can benefit the rich people doing it though.

Say they buy a painting at 10,000£, then donate it to charity a year later. They are now down 10k and also don’t have a painting. How does declaring that as a charitable donation change anything?

In: 88

Answer 1

You are a rich person. You get £1 million a year. You have to pay £454,000 tax.

You buy a painting for £10,000 and donate it.

You are down £10k, but you can deduct it from your income. Your tax gets calculated as if you earned £990,000 instead of £1 million. This means for that year you only pay £450,000 tax. A saving of £4k.

You spent £10k on the painting, but get a £4k tax refund. You are down £6k, but the charity that got the painting is up the painting which is worth £10k.