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Assets of passion:

what are the tax implications?

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Stanley Broun

Head of Fiduciary and Tax

The past decade has seen a significant increase in the number of people investing in alternative, luxury asset classes such as art, classic cars, whisky, coins and jewellery – as revealed by the 2019 Knight Frank Luxury Investment Index presented during the Value in the Classic Car Market (VCCM) Historic Automobile Group International (HAGI) conference in Knysna last month. What are the possible fiduciary and tax implications of investing in luxury items or ‘assets of passion’?

Investors usually purchase luxury collectable items in their personal capacities, but some still consider discretionary trusts as suitable vehicles to house these types of assets. Although trusts may have certain advantages, investments held in trusts or companies are no longer classified as personal use assets for tax purposes. If disposed of, any increase in value will therefore be subject to capital gains tax (CGT).

In terms of the Income Tax Act 58 of 1962, only a natural person, or a special trust, can disregard a capital gain or loss when a personal use asset is sold. In effect this means that trustees selling an expensive art piece for a gain will be subject to CGT at trust rates, unless the capital gain is distributed to the trust beneficiaries, which will result in the gains being taxable in their hands. This also has a downside in that the gains distributed in this way will now form part of the beneficiaries’ estates.

It’s also crucial that collectable luxury assets are properly addressed in an investor’s last will and testament. Such items, for example, valuable art works, will generally be passed down from one generation to the next. However, what happens if the next generation decides not to carry on the tradition? The last will and testament should ideally provide the executor with the flexibility to sell an item to other collectors. This will ensure that it can be sold at a good price to someone who will take care of it.

Personal use items held by natural persons will form part of their estates when they die. It’s therefore advisable to ensure you have enough liquidity in your estate to pay any estate duty and other taxes upon your death. If you don’t, the executor of the estate will have to dispose of some of the assets to pay the relevant taxes. The executor may be forced to sell some of the collectable items in the estate to create liquidity, which could result in heirlooms not being passed on to the next generation as you intended.

The bottom line is that if you do decide to purchase collectable luxury items, you need to consider the implications of doing so either in your own name or that of a trust, especially the tax and estate duty consequences of each option. If held personally, ensure that your will deals with the complexities of these types of assets, and that you have enough liquidity available to cover any estate duty and other taxes to prevent any unintended consequences.

If you have any questions or need assistance to review your estate planning or tax affairs, call Stanley Broun on 011 778 6648 for an appointment, or email

Also see Leon Strümpher’s article on investments of passion – in particular, classic cars – which have delivered remarkable returns over the past decade.

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