If luxury items or collections such as art, vintage cars or jewellery are to be transferred on death or during your lifetime, it makes sense to consider the precise structure of this process.
Art collections, for example, sometimes have a high sentimental, economic and cultural-historical value. This is taken into account in inheritance and gift law.
There are a variety of structuring options to increase the tax-free amounts under gift and inheritance law and to help lovingly assembled collections of art, jewellery, handbags or vintage cars or individual items achieve the best possible fate with tax privileges.
Tax liability when transferring art, jewellery or classic cars
If art, jewellery, handbags or vintage cars are to be transferred as part of an estate or as a gift during a person's lifetime, taxes are payable under the Inheritance and Gift Tax Act (ErbStG).
Taxpayers, such as heirs, are sometimes obliged to pay high inheritance or gift taxes. The amount of gift tax depends on the value of the items to be transferred. Taxpayers must state what is to be transferred (§§10 et seq. ErbStG).
The inheritance and gift tax allowances are then deducted from the total amount (§16 ErbStG). Other attractive tax privileges are regulated in §13 ErbStG. Other privileges can be found in foundation law.
For collectors of cultural assets in particular, the law offers opportunities to increase the tax-free amounts. Especially if these are made accessible to the public. The private commitment of collectors who bring together important and possibly historically valuable items such as art or vintage cars is thus to be rewarded.
It is also intended to avoid the possible forced sale of collections or individual items because the tax burden appears too high. It is therefore advisable to seek professional help on the various structuring options and legal requirements at an early stage. Individual support and advice that takes into account the cultural and historical significance of an art collection or the importance of craftsmanship in the manufacture of jewellery or bags, for example, is essential.
In this way, tax-free amounts can be increased and at the same time an appropriate fate can be guaranteed for an art collection, for example. Further structuring possibilities arise in foundation law.
Privileged tax treatment of jewellery
Luxury jewellery collections and individual pieces of jewellery have a high aesthetic value and embody the result of the finest craftsmanship. Due to this high quality, they are also considered desirable cultural and commercial goods.
For example, the Museum of Applied Arts Cologne (MAKK) is showing an exhibition entitled „Fascination Jewellery 7000 Years of Jewellery Art.“ In this context, 370 selected pieces of jewellery from different eras, such as antique gems from Elisabeth Treskow's collection, are on display to the public.
Jewellery collections are also attracting more and more attention at auctions. Not least because of their association with famous personalities and the prices achieved. The jewellery collection of the Duchess of Windsor, Wallis Simpson, was sold for $50 million at Sotheby's auction house in 1987.
The collection of Hollywood actress Elisabeth Taylor fetched as much as $115 million at a Christie's auction in 2011. Given the significance of art collections as cultural assets and the importance of showing the collection as a cohesive whole, collectors should be aware of the tax implications when transferring jewellery.
Advice and guidance should be provided that respects this significance and recognises jewellery as cultural objects.
Tax-free transfer of luxusjewellery
Individual processed jewellery items or entire jewellery collections are privileged under tax law in accordance with §13 para. 1 number 1 ErbStG. Accordingly, unprocessed coins, precious metals, precious stones and pearls are not privileged.
A completely tax-free transfer of jewellery up to a value of 41.000€ is possible in accordance with §13 para. 1 number 1 sentence 1 a ErbStG. For this, the jewellery must be part of the household effects. It must be suitable as a household item and also serve as such. Luxury jewellery or antique jewellery collections in particular generally lack this characteristic.
In this case, tax-exempt categorisation as other movable tangible property is possible in accordance with §13 para. 1 number 1 sentence 1a ErbStG. However, the value of the jewellery must not exceed 12.000€. These value limits apply to acquisitions by persons in tax class I (spouses, civil partners, children, stepchildren and grandchildren). In the case of a transfer to taxpayers in tax classes II and III, the value limits are 12.000€ in each case.
When it comes to the individually determinable legal assessment of whether jewellery can be classified as household effects and the question of how a sensible division under tax law can take place, it is advisable to obtain valuations and legal expertise. The importance of antique jewellery, for example, due to its high quality, special craftsmanship and aesthetic historical features, should be taken into account with individual advice and support.
Tax privileges for art
Art is not only an aesthetic and idealistic enrichment for collectors and enthusiasts, but can also represent a historically valuable cultural asset, which can be placed in a historical context as a representation of aesthetic and artistic works. Art is also a commodity and therefore an investment.
For example, the personal collection of the packaging artists Christo and Jeanne-Claude was auctioned off by the auction house Sotheby's in favour of their heirs. It included 400 works and some works from the joint estate. These included one by the inventor of the famous ultramarine blue, Yves Klein. At over 9 million $, more than double the expected sum was realised at the auction.
A few years ago, the private art collection of Austrian entrepreneur Karlheinz Essl was auctioned in London for more than 66 million €. Inventing works of art and observing the long-term development of their value on the art market is therefore economically and ultimately also fiscally attractive. Because of the far-reaching social significance of art, it is privileged by law.
Under German law, for example, it is possible to make use of the minor or major art exemption if the transfer of art is desired. It is also possible to benefit from the provisions of foundation law.
Tax privilege of 60 per cent within the framework of the small art exemption
As part of the so-called small art exemption, art collections or individual works of art that are to be transferred may qualify for a tax privilege of 60 per cent of their value (§13 para. 1 number 2 sentence 1 a ErbStG).
In principle, the „fair market value“ must be used to determine the value under tax law. Explicitly in inheritance and gift tax law, the value that would be realised by the taxpayer in a hypothetical sale, for example on the day of the inheritance, is decisive.
„It can happen that a work of art was purchased at a market value of 100.000€, but the tax-relevant fair market value is only 60.000€.“ Says dtb founding partner and expert in art law Dr Pascal Decker on the possible differences in value.
dtb partner and expert in inheritance law Bertold Schmidt-Thomé sees an advantage in this difference. Art can be utilised well under tax law. „The difference between market value and fair market value plays an important role. Many years of legal practice have shown that, particularly when transferring a private collection to the next generation, the fair market value can be set at up to 50 per cent of a hypothetically calculated sale price. This saves money in inheritance and gift tax.“
Three conditions must be met for the small art exemption.
Firstly, the preservation of the objects must be in the public interest due to their significance for art, history or science. Secondly, the annual costs must generally exceed the income generated and the objects must be or already be utilised for the purposes of research or public education to an extent appropriate to the circumstances.
It is advisable to present the collection or artefact to a relevant museum. This is because if the museum declares that the preservation of the art is in the public interest due to its importance and it is therefore prepared to receive the art on loan, the criterion is always fulfilled (see BFH, judgement V. 12.05.2016 - II R 56/14 BFH).
The second condition for tax privileges is that the art must not be financially profitable. In particular, maintenance costs such as restoration, storage and insurance must not exceed the income generated, for example through licensing.
The final criterion is utilisation. This is usually already fulfilled when the art is exhibited in a museum. This is because the art is then made accessible to the public. According to the Federal Fiscal Court, the criterion is also fulfilled if a cooperation or loan agreement is concluded for the exhibition of the art object or collection in a relevant museum (see BFH, judgement V. 12.05.2016 - II R 56/14 BFH).
The same regularly applies if the artefacts or the collection are or will be made available to visitors by opening private properties. However, if a museum has no capacity for an entire collection, for example, or if an art object is not suitable from a curatorial point of view, this may constitute an obstacle with regard to the requirements of §13 para. 1 number 2 sentence 1 a ErbStG.
It is therefore advisable to take good precautions by visualising all options. If necessary, museums should be approached in good time with legal support in order to determine an appropriate way of recognising the art-historical and social significance of the collection in question. Foundation law in particular offers such possibilities.
Full tax exemption as part of the major art exemption
As part of the major art exemption, there is the attractive option of benefiting from a full tax exemption for the respective items in accordance with §13 para. 1 number 2 sentence 1 b ErbStG.
This is particularly interesting for collectors of cultural assets. In addition to the requirements for the small art exemption, the taxpayer must be prepared to subject the items to the applicable provisions on the preservation of historical monuments.
They must also have been owned by the family for at least 20 years or be entered in a register of nationally valuable cultural assets in accordance with §7 para. 1 of the Cultural Property Protection Act of 31 July 2016 (Federal Law Gazette I p. 1914), as amended. According to the decision of the Federal Fiscal Court, it is sufficient that a declaration has been made to the competent monument protection authority regarding compliance with the monument protection and conservation regulations.
The conclusion of a loan or cooperation agreement with a relevant museum may also be sufficient for this purpose (see BFH, judgement V. 12.05.2016 - II R 56/14 BFH). If the art object or collection is a cultural asset, it can be entered in the register of nationally valuable cultural assets in accordance with §7 para. 1 of the 2016 Cultural Property Protection Act (KGSG).
From a practical point of view, categorisation as a nationally valuable movable cultural asset requires the involvement of a committee of experts consisting of knowledgeable persons (§14 KGSG).
An artefact must be registered if it is of particular significance for Germany's cultural heritage and thus creates a sense of identity for German culture. If its disappearance would mean a significant loss for Germany's cultural heritage and its retention in the federal territory is therefore in the outstanding cultural public interest, this privilege is relevant (§7 para. 1, cf. §6 para. 1, §12 para. 1 number 1 KGSG).
The law thus creates a privileged status for cultural assets that are to be preserved in Germany. This idea is also reflected in foundation law. In order to be able to make use of the full tax exemption, it makes sense to document the acquisition of the art and clarify the legal situation with inheritance and art law experts. It is also essential to obtain advice and support from experts who are aware of the cultural and historical significance of the collection and the individual objects.
They can help with the fulfilment of documentation, auditing and recording obligations.
No retroactive cancellation of the privilege
It should also be noted that the tax exemption may lapse with effect for the past pursuant to §13 para. 1 number 2 sentence 2 ErbStG. This is the case if a sale of works of art or the collection takes place within the first 10 years after the transfer or if the above-mentioned conditions cease to apply during this period.
A comprehensive examination of the fate of the items to be transferred or the collection is therefore advisable, as the cessation of the conditions must be assessed individually for each item.
Tax privileges for classic cars
Classic cars are special collector's items. They are a living and valuable part of automotive history and demonstrate the development of vehicle mechanics and manufacturing craftsmanship. They are therefore also tradable goods with rising prices. Old vehicles from Ferrari, Bugatti, Lincoln, Chevrolet, Mercedes, BMW, Audi and Lamborghini, for example, can be invaluable.
For example, the sensational collection of the collector Ad Palmen with over 230 vehicles was auctioned by Galerie Aaldering in the Netherlands in 2023. These included a Villard Type 27, a Monica 560 and an Imperia TA-8. „This barn find collection is truly a unique opportunity for car enthusiasts and collectors around the world to expand their collection.“ Says owners Nico and Nick Aaldering.
While preserving the integrity of a painstakingly and lovingly assembled vintage car collection is the main focus when transferring it, there are ways to do this in a tax-sensitive manner. In principle, the tax exemption for household items under §13 para. 1 number 1 sentence 1 a ErbStG applies. However, in view of the high value assessment of classic cars, the value limit is quickly exhausted.
Under certain circumstances, classic car collections can also be categorised as scientific collections and benefit from the small exemption under §13 para. 1 number 2 sentence 1 a ErbStG. The conditions already described in accordance with Section §13 para. 1 number 2 sentence 1a ErbStG must be met. For example, the classic cars can be made available to a vehicle museum on a temporary basis.
Furthermore, it cannot be ruled out from the outset that a classic car collection is a scientific collection. An exemption for classic cars would fit into the system of favoured cultural assets. This is because it can be argued that classic cars are objects that serve to maintain the cultural heritage of motor vehicles (§2 number 22 of the Vehicle Licensing Ordinance; FZV).
Alternative structuring options
In addition to utilising tax exemptions in accordance with §13 para. 1 ErbStG, there are other options for structuring the estate and, if applicable, the inheritance in a tax-efficient manner. For example, in foundation law.
A donation of works of art in lieu of payment can also be considered if there is a special public interest in doing so (§224a of the German Fiscal Code; AO). This is a mechanism under which the taxpayer can be authorised to transfer certain cultural assets to the state.
A much more preferable option is to reduce taxes under foundation law by transferring art collections to an artist foundation. By setting up a foundation as a succession instrument, foundation law enables individualised and varied succession planning.
Résumé
People who collect luxury items such as vintage cars, jewellery, handbags or art and wish to transfer their valuable items should consider various structuring options, including the right to make a foundation gift. This allows for tax-sensitive planning of the pre- or estate with a view to inheritance and gift tax.
dtb partner and expert in inheritance law Bertold Schmidt-Thomé comments: „Ideally and economically valuable art collections can be transferred with extensive to complete tax exemptions. For this purpose, loan or co-operation agreements can be concluded with museums. In this way, the art can be made available to the public. It also makes sense to check whether it is a cultural asset within the meaning of the KGSG.“
Status 19.03.2025