Tax on insurance payout

[Amberlight007]

Amberlight007
Perhaps if the you can quantify the amounts involved this may add to the picture as to whether there is actually a trade here (insurance payout and costs of producing artwork). also if the you can clarify if he you have ever treated any art income as trade income previously.

bd6759

IF we take the worst case scenario that this is the receipt of a trade would you agree that ALL expenses in relation to the cost of the producing the art (any course fees learning art excluded) would be allowable under the normal pre-commencement trade rules presuming the op has had no prior income.

eg cost of materials / consumables / travel (45p mile? own car) to and from places that are in connection with potentially selling the art or buying stock / use of home costs - i could easily imagine that the direct and not so direct but related costs incurred by the OP could perhaps equal or exceed the insurance payout. Restricted to normal 7 year? time limit.

[Amberlight007]

I have never sold my art. 19 works were only being exhibited in the public building as I was told by a friend that they were looking for work to put up on their walls, this was also good for me in that I could (ironically) keep my work from getting accidentally damaged at home due to lack of space. The pieces were not up for sale and I didn't want to sell them, they represented something more valuable to me. A section of c.6 x 6 inches of preliminary work averaged around 6 hours of work. I put in a claim for around £12k to cover a loss which represented to me the loss and all the hours spent working over many years into what I hoped would be a showcase and springboard for a new project one day nearer retirement, and I received more or less what I asked for. I don't have receipts but maybe the raw materials added up to around a third of the total and the rest represented the hours spent working at home.

[pawncob]

But the clarification might not be correct.

Imagine that you were a boat builder, not an artist. You build 6 boats to demonstrate your skills in the hope that you will one day sell them and obtain orders for some more. They all sink in dreadful storm. The insurance pays you their selling value. That would be a taxable receipt becasue it would compensate you for loss of profits.

In what way does your situation differ?

Well firstly, he had no intention of ever selling his works. There's no "hope that you will one day sell them". There was never any intention to start a business, nor any evidence that a trade or a business existed. It was a hobby.

[robbob]

Amberlight007


Just out of interest was the insurance cover that of the Gallery that you were able to make a claim under - or your household insurance or did you have a specific policy that covered the artwork? - presumably you didn't have a trade related policy in place that you claimed on ?

[Amberlight007]

The building my art was in was a group of offices which had nothing to do with art or a gallery. I didn't have them insured on my home insurance or have a specific policy to cover the them. I presume their insurance policy covered it as they were on their walls and their building got damaged with the flooding too.

[robbob]

Ok if we take the viewpoint that this isn't income from a trade here are some details of the chattels rules

https://www.jhpca.co.uk/tools-and-guides/your-money/savings-and-investments/capital-gains-tax-on-disposal-of-chattels


It all gets a bit complicated though if we throw into the mix the fact there was the case where the £9 million 200 year painting was exempt from tax as it was a wasting asset with expected lifespan of less than 50 years.
https://www.rossmartin.co.uk/private-client-a-estate-planning/capital-gains-tax/1074-painting-is-plant-for-capital-gains-tax

It isn't even obvious to me whether you have effectively received the 12k as disposal proceeds of the painting - or it could be argued that it some sort of compensatory payment that is not deemed to be funds for disposal of paintings.

The good news is that if its not trade related the amount is pretty much at the capital gains exempt amount - so there is unlikely to be an issue on that front unless you have other disposals.

Compensation payments - well that would probably need another whole thread to look at but i would presume - as non trade related it would either be exempt from tax or come within the capital gains exemption at worst.

Note with regard to what it actually is i would place alot more faith in the comments of pawncob and bd6759 - than anything i would add


hmmmm i am sure there is an interesting case with regard to the difference between a gun and a clock, there is a subtle difference between the two would you believe from a tax point of view! - sometimes tax just doesn't make any sense.
ahh here it is

The paragraph then goes on to consider and compare antique clocks and shotguns.

‘In our view there has to be a subtle difference between clocks and shotguns. Once you have wound up a clock, it continues to tick more than once, whereas with a shotgun once you have pulled the trigger, you only get one discharge out of the barrel. That said, we accept that you then have to go on and consider what happens if you have an automatic weapon or machine gun which effectively fires continuously.
‘While we take the view that the matter is not free from doubt, we would generally accept the argument that all types of gun should be treated together under the general description of “machinery” so that they would have a predictable life of less than fifty years,

[Amberlight007]

Thank you everyone for your considered replies - my mind has been boggled a bit but I am very appreciate for the discussion on this subject.