Investment in art in the millennial age

Over the next 20-30 years, there is due to be a huge intergenerational shift in wealth, with £5.5 trillion in the UK passing down from the baby boomer generation to millennials and beyond according to research from the Centre for Economics and Business Research. In the United States, that figure is a staggering $60-100 trillion. As well as property and cash, some of that wealth will be in the form of art and collectables.

We asked Investec Wealth & Investment’s Simon Bashorun and ArtTactic’s Anders Pettersen for their views on the issues and opportunities this presents for the art market, the tax implications from an inheritance standpoint, and what trends we may see arise.

The future of the art market is in millennials’ hands

We are reaching a pivotal moment in the art market, as Anders observes: “Baby boomers are now passing their art-related wealth to the next generation.” With large collections falling into the possession of new, younger owners, we’re certain to see shifts in the behaviour of sellers and buyers, and the rise of new trends.

Exactly what these may be is yet to be revealed. Anders speculates: “There is an issue around taste, and whether that taste of the next generation will resonate with the past. There are also big issues regarding, what are these young individuals going to do with these massive collections; do they want to keep it? It’s a major opportunity for the art market.”

Millennials will likely take a different approach to investment

Though intergenerational wealth transfer is nothing new and has always operated as a regular cycle, Simon notes that this particular cycle is unique, as millennials find themselves in a vastly different financial landscape to their parents and grandparents. They also have a different perspective on wealth.

He explains: “They have struggled in areas that, perhaps, the previous generation hasn’t, particularly in terms of property purchase. So, some of that money isn't going to be available for immediate investment. We’ve also witnessed trends to suggest that they place a priority on experiences rather than saving for a rainy day. So, again, that may reduce the amount that filters down to investments.”

Investment in art may capture millennials’ imagination

Though there may be less money available for investment overall, there is positive news for the art market, in that millennials tend to be more drawn to investments that align with their values, or that excite them. Simon feels that: “When it comes to investments, they look at things a little differently. In terms of the asset classes, conventionally we might think of stocks, bonds, property; they will look at perhaps art, collectables, and digital assets, I believe.”

Anders agrees: “The biggest change we might see linked to generational wealth is the growth in digital art. We’ve already started to see fragments of this over the last couple of years and I think we're at the beginning of a wave.”

This trend may also help to grow investment in art by removing some of the hurdles. Anders predicts: “The infrastructure around digital art, in terms of ownership and blockchains, etc., will solve many of the issues and the friction that currently exists in the art market.”

One issue to overcome is that of inheritance tax

For those with art collections to pass on, and those who are set to receive them, inheritance tax is an important consideration, as this applies to art and collectables just as it does to other valuables in your estate. This means that, if your estate exceeds the nil-rate band (£325,000, with an additional £175,000 available if you pass on your home to a direct descendent), the excess is liable to be taxed at 40%.

However, for owners of high-value artworks specifically, Simon explains: “There are a number of schemes available that can serve to reduce a tax bill, eliminate a tax bill, or defer a tax bill. I'm thinking of the Cultural Gifts Scheme, the Acceptance in Lieu Scheme, and the Conditional Exemption Scheme.”

He adds: “If a work of pre-eminent art is left to an institution for the benefit of a nation, it can save families quite a considerable bit of tax – and, in some certain circumstances, enable them to still enjoy that work of art, subject to conditions. It has to be left to certain institutions and only applies to certain works of art, but those exemptions are available to artworks of interest, and they may be useful to families with those sorts of artworks in their collection.”