Reassessment - Part 1

Anyone reading this blog since I started writing it shortly after Dave Pearson's death in the summer of 2008 will remember that one of the biggest issues we (the Dave Pearson Trust) faced in the early days was the problem of valuing his work for Estate Duty. The problems we had to overcome were complex, if not exactly unusual with artist's estates, and for those reasons I started recording our progress in this blog.

Dave sold work throughout his life, but it was never a preoccupation. He earned enough from lecturing to cover his needs, and ultimately preferred to spend his time painting than bothering too much about galleries, or his reputation.

Like many artists he died leaving behind a lot of work. In his case an awful lot. I estimated between 14,000 and 20,000 pieces at the time, and at this point, after several years of careful cataloguing, we've archived 12,000 pieces. The likely final number will be about 16,000 pieces.

Because Dave had not sold anything in the 5 years prior to his death there was nothing to base value on. I approached two reputable companies who specialised in valuing art works and estates. When I described the situation they lost interest. I couldn't get anyone to visit the studio and take a look. In the end the Inland Revenue accepted a very low figure - £5000 I seem to remember – which did little more than reflect the value of the canvas, wood paper and paint left behind in the studio.

But the story doesn't end there. There's a '10-year rule', and every 10 years the value of an estate, if its held in trust, is reassessed, and tax rules are re-applied. At this point working it out gets extremely complicated as various rules, involving percentages of percentages are applied. If there's a a significant increase in value, then Capital Gains Tax might also apply.

After the first few years, and after the Inland Revenue wrote to say that they accepted our valuation, we've let things lie. But now, with less than two years to go before the 10 year anniversary, we've had to start thinking again about our valuation issue. It's frankly too complex a subject for any of the Trustees to handle, and even our decent local solicitor has recommended that we seek specialist advice.

There's an irony in the underlying situation in that we formed the Trust to save Dave's work, and help to foster and develop his reputation. It's meant archiving and safely storing the work, and this has meant that we've sold work in order to cover our costs. No one makes money from this – we employ a part-time archivist, and we pay rent on the studio. Any income beyond this will, in the end, go to Dave Pearson's son.

By doing the work we're doing, however, we've inevitably considerably increased the value of the work. So its clear that today a valuation would have to be considerably higher than the initial £5000. If we say that the 15,000 pieces left were worth an average of £50 each, then the estate would be valued at £750,000 – a huge increase, with god-knows-what tax implication. But of course nearly all of this work lies in storage – the value is only potential value, IF it were all sold. In any case that £50 is probably rather low. So this is where the negotiations really begin, and why – after looking through the very useful Artlaw pages online (http://www.artquest.org.uk/artlaw/) - we're about to go and talk to a solicitor who specialises in this kind of thing.

To be continued...soon.

A visit to the solicitor

Earlier this month the three Trustees went to see our solicitor. These visits are infrequent, and in between them we tend to forget the complex information (to us anyway) imparted on such things as our taxation status. So every so often we go back for a refresher visit. Fortunately Stephen Parr at Woodcocks is an excellent communicator, and we leave feeling - at least temporarily - wiser and more knowledgable. 

But now we're looking ahead to the situation in 2019, 10 years after the Trust was established, when there is a tax review of the estate. Even our solicitor acknowledges that the calculations involved in this are highly complex - and a simple top-of-the-head calculation is impossible to produce. This was our main field of inquiry on this visit, and we were promised an estimate of its impact once Woodcocks had run the necessary data through their software. 

Last weekend the results arrived. Given we've no idea of what the value of Dave's Estate will be in 2019 it was based on guesswork, but the results were scary - a possible tax burden of £75,000 or more. 

Best to be prepared of course, and this is all 6 years away, but the issue is clearly a serious one. We don't understand, if I'm totally honest, a lot of this. It appears that an estate is taxed on this basis every 10 years, so the same items get taxed over and over. Can this be right? It also means that if our work to enhance Dave Pearson's reputation is successful then we're also increasing the tax burden for ourselves - and remember that this is a tax on work unsold as well as work sold, so it isn't as if we've earned any income which can be set against the tax. 

Anyway, as you can imagine, these issues, and other related questions, are all very much on our minds. Over the next few months we'll be going through this territory in more detail. With the help of Stephen Parr and his colleagues. I'll keep you posted.

The tax situation (in some detail).

Since the main reason to write this blog was in order to help anyone who finds themselves in the position that I was placed in, namely an Executor of the Estate of an artist, it's worth me writing at some length about the current situation with regard to Estate Duty. I went back to the early entries of the blog and realised that I never really discussed this in much detail. But now, 18 months on, HM Revenue and Customs are asking us for clarification it's worth saying something about the background and circumstances that has produced this situation. 

a) Dave Pearson asked me to be joint Executor to his will, with a particular role in looking after his artwork, and in that role I supported his son Christopher in negotiating the probate arrangements around the valuation of the artwork left by his father. In Dave's case this was difficult as he simply didn't sell much work during his lifetime, and had not sold anything for several years before his death. Probate, by the way, is a document that enables a person, usually an executor, to deal with someone's estate, between their death and the acceptance in law of the settlement.

I researched and explained the inheritance tax situation as I understood it to Chris, and I made a real effort to seek expert valuation of the artwork. You will appreciate that this was difficult as the artwork in the studio had not been touched for many years and the building itself was in a very poor state of repair, plus the artwork was distributed throughout the building in a chaotic way.

b) Dave's Estate included a studio, various 'chattels' (furniture and such like) and some money in the bank, as well as his artwork. The first things were relatively easy to value, and the total value of these came under the threshold for Dave's estate to need to pay Estate Duty. 

Chris and I  realised the importance of getting the work valued and spent several days on the internet and telephone trying to get expert opinion. Walton and Walton, auctioneers and valuers, of Burnley finally agreed to meet with me and asked me to bring a selection of Dave Pearson's artwork to their salesroom. Their website describes them as offering services for 'Professional Valuations for Probate'. I asked Chris Pearson to come along to this meeting and we had a consultation lasting about half an hour with their expert. He explained the difficulty of valuing the work; and given that there had been no history of sales of Dave Pearson's work for the past 5 years or more we were told that there was no basis to value the work beyond a nominal value. I asked for a written valuation but they declined to provide this, saying again that there was no basis or history on which to base a valuation and repeated their advice to put a nominal value on the artwork, which they felt was a true reflection of the value at the time of Dave Pearson's death.

To be certain about the issue I continued to research this, and spoke with several other valuers over the telephone. None would even meet with me, and the repeated message was that as there was no history of sales of the work for a period of many years, and that as Dave Pearson was not a 'well-known', or even a 'known' artist, any valuation could only be nominal.

c) I passed this information on to Chris Pearson and he met with his own solicitor, and at that point they made a valuation of the artwork portion of the estate in line with the advice that it only had a nominal value. This then became part of the valuation of the Estate.  

d) At that point we set up the Trust and, of course, this blog explains and explores how this was done. Then a few months ago the tabloid press got hold of a story that had started with a local news report - it was along the lines of the artwork being worth a lot of money ('millions' were quoted) and played heavily on the idea that Dave Pearson had been a reclusive eccentric; in other words a modern version of the 'miser's gold' story. Of course all this was very, very far from the truth, but then the press isn't very interested at getting at the truth, and clearly they felt it made a good story as it appeared in several national newspapers.

e) So the current situation with regard to HM Revenue is that they are seeking an explanation as to the gap between a probate valuation, given late in 2008, of Dave Pearson's artwork that is 'nominal' (i.e. probably between £3,000 and £5,000) and press reports in 2010 of the work being worth 'millions'. 

f) The key thing about probate valuation of an estate is that it's the value at the point of death. A subsequent change in value is irrelevant with regard to assessing probate. As anyone following this blog will know the whole point of setting up the Dave Pearson Trust and the work we've undertaken over the past 18 months has been to increase awareness of Dave's legacy and, as a natural development of this, his works have increased in value.  All sales of work since probate have been properly recorded, and in a period of 21 months the Trust has sold just under £50,000 worth of his work. We are completely transparent about this - in fact it's a direct by-product of our aims and objectives.  We met with our solicitor last month to discuss the tax implications of these sales, and that is currently in hand. 

g) Dave Pearson's case is probably unusual although I'm certain that it won't be unique. Clearly anyone undertaking this kind of work has to be very careful to avoid the charge that they had purposely under-valued the work of an artist in order to avoid death duties. In the case of an artist who sells their work on a regular basis this would be relatively easy to prove one way or another. For an artist who hardly sold their work at all it can easily lead to the situation we're currently having to deal with.