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
To encourage donations to charity, when calculating your taxable income for a year (which is total income minus expenses related to your work) many governments allow you to count charitable donations as part of your allowed expenses.
So if you had an income of $1 million and made a $100k donation to charity, you could tell the government that your net income was only $900k, and pay taxes based on that. In effect, paying 10% less tax.
The thing is, art prices fluctuate a lot, so to get the current value of a painting you have to ask an art appraiser. Their opinions can be… influenced (not necessarily by outright bribery, but that’s one option). So you can buy a painting for 10k, hold onto it for a few years, and then get an appraiser to say that its value has risen to 100k.
So if you were going to pay 40% total tax on your $1 million income, that would be 400k. A saving of 10% is equivalent of 40k. You paid 10k for the painting, so you’re 30k up.
There are more factors that come into it, especially around how you make a convincing case that your 10k painting is actually worth 100k. But that’s the ELI5 answer.
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