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Birmingham Assay

The Birmingham Assay Office is to permit the use of its famous anchor hall mark by an office due to open in the near future in a Mumbai export zone.  The decision has angered some British silversmiths and the Birmingham jewellery business. But Edinburgh is already one step ahead.

Hall marking which was first used in the 1300s is regarded as one of the oldest independent forms of consumer protection.  The anchor has been used to denote Birmingham manufacturing since 1773, like the leopard’s head for London, (circa 1300) and the castle for Edinburgh (circa 1550).

A European Court ruling in 1998, required recognition by member states of equivalent foreign hallmarkings and allowed the establishment of foreign hall marking operations in other countries.   The Sheffield Assay Office has already set up an Italian operation in Malpena, near Milan.  

Edinburgh and London now run hallmarking operations at Heathrow.  Edinburgh runs its operation in partnership with secure logistics firm Malca-Amit. This new international hallmarking and onward shipping service will enable importers of precious metal jewellery from outside Europe to have all of their goods tested and marked in one secure location rather than dealing with Assay Offices in each country of importation. After marking, consolidated shipments can be broken down for distribution to multiple locations, removing the need to carry separate stock for each country.

The process starts with product shipped direct from any international location using Malca-Amit’s secure logistics service. It is then tested and hallmarked by Edinburgh Assay Office while in transit through Heathrow under a temporary import scheme. Finally, the product is delivered to any international location where duty can be paid and the goods released. Since the product is brought into Heathrow under temporary import, tax is deferred until the shipment reaches its destination. The service also includes pick and pack capabilities.

In March, the Birmingham Daily Mail reported “Bosses say Birmingham’s historic silver trade is being sold down the river after it emerged a symbol of Birmingham’s jewellery heritage for nearly 250 years would now be used in India.”  However, the application of hallmarking to products other than those manufactured in the UK is seen as vital to the continuing existence of the UK assay offices. 

CITES Updates

Christie’s in New York has had two ancient Indian sculptures removed that were due to sell in its south-east Asian sale in March.  Catalogue entries fully described their origins and provenance.  Federal Agents claim that the items appear in a group of images seized in 2012 following a raid of storage facility of a former Manhattan gallery owner currently awaiting trial in India for allegedly looting vast quantities of antiquities.   Christie’s has pointed out that this information was not publically available for vetting purposes. 

Meanwhile, in the UK, Customs authorities have recently been criticised by a judge as “unreasonable” and “over zealous”   following an appeal over the confiscation of an 18th or 19th century Narwhal tusk by the UK Border Force attempting to apply CITES regulations.  Meanwhile, dealers are being invited to participate in a research project to gauge the effect of a total ban on the sale of ivory works of art in Britain.

The Tusk was sent in August 2014 by a retired dealer in Norway, to Charles Miller, the London specialist marine auctioneer.  While the Tusk had arrived with the relevant CITES paperwork, the sender had failed to acquire an important permit and a pre-agreed Article 10 certificate required as Norway is not part of the EU.  The authorities admitted that had the import of the tusk not been for commercial purposes, the make would have been rectified by the grant of a retrospective licence. (Source ATG)

Meanwhile, it has emerged that four London dealers were forced to "contraband" elements in various antiques they were taking to the Miami Beach show.  The dealers and their shippers had failed to refer to in accompanying paperwork CITES protected elements such as ivory, tortoiseshell and mother-of-pearl.  Finials and handles of silver tea and coffee pots had to be smashed to remove the "contraband" elements.  Feathers had to be stripped from the singing bird of an 18th century Swiss gold and enamel music box on the grounds that the dealer could not identify the species they were from.  In addition, fines were levied. 

A yearlong project has been initiated by the School of Law at Portsmouth University to gauge the effect of a total ban on the sale of Ivory in the UK.  The first phase of the project will involve interviewing auctioneers, with phase two contacting dealers. Caroline Cox, who is heading up the project, sees a total ban, as promised in the Conservative Party’s 2015 manifesto, as “ an overreaction.” (Source ATG)

The Berwickshire based dealer Paul Harris, in his Chinese Art blog, finds that the past few months have seen a lot of Chinese worked ivory coming onto the market and wonders if owners are disposing of their collections in fear of the present Conservative government’s pledge.  The ATG also reports that Hong Kong has recently announced it will be looking to take steps to ban totally the sale of ivory in Hong Kong to bring the city in line with recent promises made by the Beijing government.  

The International Union for Conservation of Nature has recently reported the alarming increase in rhino poaching in Africa, increasing from 62 in 2007 to 1,338 last year.  The white rhino population of 21,000 is declining by 0.4 % annually.  (Source The Times March 10 2016)

The Scottish auction house LS Smellie & Son Ltd in Hamilton, South Lanarkshire, has just been fined £1,500 on the basis that they were offering ivory items for sale where the origins and age of the ivory was not clear and the auction house did not have the necessary certificates.

Hiscox Online Report

Despite a 7% decrease in global art auction sales in 2015, the online art market grew by an estimated 24% last year, indicating that the lower end of the art market could be more resilient to a slowdown than works selling in the mid- to high-end price range. Online art market sales are estimated to have reached $3.27. billion, up 24% in the last 12 months.

The Hiscox Online Art Platform Ranking 2016 signals that art buyers are still rating the traditional auction houses highly, despite stiff competition from the growing number of pure-play online companies such as Artnet.

About half (49%) of respondents approached in preparation of the Report  said they have bought art directly online, which is the same result as last year (but up from 39% in 2014). However, among ‘new art buyers’ 41% said they had bought art online in the last 12 months (down from 43% in 2015) and 43% of young art buyers said they had bought art directly online (down from 46% in 2015), which could suggest that the online art buying trend might not be catching on as fast as in previous years.  However, 92% of online art buyers expect to buy more or the same amount of art online in the next 12 months.

The Report upgrades the growth rate in the online art market from 19%  in previous reports to the current 24% annual growth rate, suggesting that by 2020 it will be worth $9.58 billion.

The TEFAF Art Market report 2016, published earlier this year in conjunction with the Maastricht Art Fair estimated global online sales a little higher at $4.7bn, up 7% year-on-year and accounting for 7% of all global art and antiques sales by value, although 97% of their sales in 2015 were for less than $50,000. That  Report also  suggests that most online players are continuing to do much the same thing as is being done offline, with the new online channel complimenting offline outlets and without much of the anticipated ‘disruption’ to the traditional offline market. 

Read the Hiscox Report

Deloitte & ArtTactic Art & Finance Report 2016

Published in conjunction with Deloitte's 9th Art & Finance Conference, this year held in Amsterdam in collaboration with the Van Gogh Museum,  Deloitte & ArtTactic’s fourth report deals with emerging trends in the Art & Finance industry.

The Report, which was first issued five years ago, has come to be regarded as one of the most authoritative commentaries on the art industry. The Report comes at a challenging time not only for the art market which until last year has been enjoying something of a “bull run”, but also  for the wealth that supports it facing continuing global political and economic volatility.

In the midst of such global volatility the Deloitte & ArtTactic Art & Finance Report 2016 sees wealth managers as increasingly challenged to look beyond traditional and wealth management products, moving gradually closer to seeing opportunities around their clients' art and collecting assets.
The Report finds for the first time in five years, a closer alignment of views of the wealth management industry with those of collectors and art professionals, where 70% and 77% stated the importance of including art as part of a wealth management strategy and offering. "It is important", says the Report, "that the wealth management industry starts to develop a cohesive strategy and value proposition around how existing services, such as wealth reporting, estate planning, philanthropy, research and lending, can also incorporate non-traditional assets, such as art."

Research for this report was undertaken between November 2015 and January 2016, and involved private banks, family offices, art collectors, art professionals (galleries, auction houses, and art advisors), in Europe, Asia, the Middle East, Latin America and the USA.

Read the Report

An art inheritance tax update: where I hang my art... I call my home?

The recent First Tax Tribunal decision in Scott v HMRC considered an appeal against HMRC's determination that some paintings had not been validly gifted by a mother (the late Dr Olive Scott) and a great aunt (Dr Janet Steele) to the appellant, Malcom Scott, (son and great nephew) and were therefore liable to inheritance tax.

Stand and deliver! Was there a gift?  This was the crucial question.

It was agreed by the court that under both Scots and English law, (the case involved transfers taking place in Scotland and England) the physical transfer or delivery is crucial to an effective and legal gift.  The legal historians (and Pythons) will note this is something that the Romans did for Scots law with the idea being that it should be objectively apparent by the physical delivery that the transfer had indeed been made by one individual to another.  Usually after physical transfer, the recipient will take the item away and, for example, put it in their own accommodation.  The inheritance tax importance of effective delivery is due to the rule that if one gifts an item and then essentially continues to benefit from the gifted item, it is called a ‘gift with reservation benefit’ (affectionately known as a GROB) and the ‘gift’ remains in the estate of the donor and is liable for inheritance tax.  
It's my art, so I’ll re-hang it if I want to!

However, in Scott v HMRC there was a twist to process of delivery.  The process of delivery (of Olive’s paintings) took the following form:

Step 1. Paintings are on a wall in the house of Malcolm and his (now deceased) brother’s parents (Olive and her husband);
Step 2. Paintings are taken off the wall and given to Malcolm and his late brother; and
Step 3. Malcolm and his brother, as the recipient of the paintings, decide and instruct that the painting should be re-hung on the same wall [i.e. the wall of their parent’s home and from where it came from moments before].

Even though the paintings returned to the exact same location, it was argued by the taxpayers that there had been an effective gift as there had been physical delivery.  The First Tier Tax Tribunal accepted that argument and agreed there had been a valid gift for inheritance tax purposes.  It was critical to the decision that the tribunal accepted evidence that the decision to re-hang the paintings in the same location was on the basis that the recipients did not have secure or permanent alternative accommodation in which to safely hang and protect the valuable paintings (it was also noted by the tribunal that advice had been taken before such a step).  It was also important to the decision and the law in this area that at the time of the step 2 above there was intention to transfer to the recipient (accompanying letter and contemporaneous advice) and at step 3 the recipient was then in control of what would happen next to the paintings.     

And what of the other gift?

As mentioned above, this case involved gifts made by two relatives.  The second concerned six paintings gifted by Great Aunt Janet and added another twist in the process of delivery:

Step 1.  Janet entrusts six paintings to Malcolm and his brother’s parents’ on their behalf in1986 and these remain in her home; and
Step 2.  Janet moves into a nursing home in 1991 and the paintings are moved to the parents’ house to be retained for Malcolm and his brother.

Question:  When did the gift take place?

Answer: The First Tier Tax Tribunal accepted that the gift was made for inheritance tax when Janet left her home in 1991.  At this point, her paintings were delivered by her to Malcolm’s parents’ home on his and brother’s behalf and hung on the wall on the same basis as Olive’s gift. 

In reaching its decision, the Tribunal emphasised the significance of not only the intention to make a gift (step 1 above) but also the physical act of delivery to complete the gift (step 2). 

A postscript: executors being able to work together

From the case report, one aspect is striking and unusual.  In most executries, a single report will be made to HMRC for inheritance tax purposes.  However, in this case, because the executors (Malcolm and his brother) could not agree on the appropriate reporting, two conflicting returns were made to HMRC.  Executor selection is important and it is critical executors are able to work together. If two executors are potentially going to be unable to work together then consideration needs to be given to whether there should be an entirely ‘independent’ board of executors or an odd number of executors to avoid the stalemate situation that occurred in Scott.  For those interested in contentious executry (probate) matters, we have recent blogs on the high profile English case affecting Melita Jackson’s estate and her daughter Heather Illot’s claim on the estate after being “cut out” of the will.

Alan Eccles, Partner & Lindsay Watson, Associate
Personal & Family, Brodies LLP        
September 2015

Definition of Firearms

For many years, the 1968 Firearms Act has left law enforcement agencies struggling with a definition of the term antique as a firearm “sold or possessed as a curiosity or ornament.”   The forth coming Policing and Crime Bill 2015-16, will include a legal definition of the term “antique firearm” based on functionality and whether it is a type featured on a statutory list.

The Law Commission of England and Wales has recommended that a better definition would be whether the firearm uses an obsolete cartridge type or firing mechanism recorded on a statutory list.  A mere definition by age as distinct from functionality would in time soon see firearms such as automatic weapons which may endanger the public being classified as “antique.” The Law Commission also rejected suggestions that all antique guns should be subjected to a general licensing regime.  While the relevant section of the Act does extend to Scotland, it will obviously affect guns acquired from Scotland by buyers in England and Wales.

The approach being adopted in the current bill before the House of Commons represents a significant concession to the antiques trade.  Meanwhile, the Commission implementing regulation (EU) 2015/2403, which came into force on 8 April, provides guidelines on deactivation standards and techniques for ensuring that deactivated firearms are rendered irreversibly inoperable. Sellers operating within the EU will have to ensure that their weapons comply before offering them for sale.  The regulations provide details of a range of guns and it will be necessary to reapply for a deactivation certificate and have the weapon marked with a permanent official inspection mark.  (source ATG)

The Advance of Scottish Law Schools 

Eight out of the 11 law schools at Scottish universities have moved up the rankings in the newly published 2017 edition of the Complete University Guide.

The guide provides a table of 100 law teaching institutions, ranked according to a weighting of scores for entry standards, student satisfaction, research quality and graduate prospects.

After Cambridge and then Oxford at the top, followed by three London institutions, University College London, the London School of Economics and Kings College London, Glasgow is the next highest, up one place at number 6, followed by Durham at 7 (down from 3) and Edinburgh at 8, also up one.

Four more Scottish law schools make the top 25: Aberdeen at 12 (down one), Strathclyde at 14 (up one), Dundee at 22 (up six) and Robert Gordon University, which is claiming to be the only law school from a modern (post-1992) university in the top 25, up six places to 25.

Abertay has climbed 12 places from 50 to 38, Stirling is down four from 36 to 40, Edinburgh Napier up four from 67 to 63, Glasgow Caledonian down seven from 65 to 72, and the University of the West of Scotland rises from 100 to 90. (Source Journal of the Law Society of Scotland)

Theft from the Elderly

The Times found that calls to Action on the Elderly helpline rose from 3,500 to 7,529 last year.  Action on the Elderly estimated the value of stolen money and goods at £18 million.  Police told The Times that they were being called to investigate financial crimes against the elderly than ever before. The greater concentration of wealth in the hands of the elderly has seen them developing as an easy target for unscrupulous relatives and carers. 

Last year KPMG's Fraud Barometer, measuring all UK fraud court cases with losses of £100,000 or more, reported that the value of fraud rose by 22% in the first half of this year to £385m (£317m in the same period last year). While the number of cases remained virtually the same as in the first half of 2014, the average value per case increased from £2m to £2.4m, representing a 21% increase.

An analysis of these cases by KPMG revealed a high rise in family fraud where individuals targeted their own relatives. Instances of fraud on families by one of their own grew by 384% compared to the same period last year. Elderly relatives were some of the main victims, and had £1.7m stolen from them by younger members of the family. The KPMG report also  noted that Power of Attorney registrations have more than doubled in the last four years, with almost 350,000 registered in the financial year ending April 2015, up from 150,000 in 2011.

Hitesh Patel, UK forensic partner at KPMG, commented “people are living longer, and we are seeing examples of people who are choosing to remove uncertainties about when or if they will get their inheritance by fraudulent means.” He sees such case reports as “the tip of the iceberg”, because the victims of such frauds often do not report them, preferring to “keep it in the family.”

In 2014, the Care Quality Commission issued guidelines for families over installing closed-circuit television where they were concerned that a relative might be at risk.

Another preventative measure could be to arrange for an inventory of the contents of such elderly clients’ homes. Family members, carers or others with access to the homes of the elderly could be made aware of the existence of such an inventory and of the intention of carrying out occasional “stock checks.” An itemised inventory, particularly with images of jewellery or other “tempting” items of value, would provide a relatively easy way of checking without the involvement of too much time or inconvenience to the elderly or incapacitated person. Such an inventory can also aid distribution after death and help avoid further “mysterious disappearances” of objects which can occur when someone passes away.