Brutal but clear-cut: the arithmetic of a down-cycle in art

A soft market exposes every hidden cost of selling. At the major houses, a seller’s commission of 10–15% is standard on the hammer price.¹ Then comes the taxman. In the United States, fine art is classed as a collectible, carrying a 28% federal capital-gains rate for long-term holders (with an extra 3.8% Net Investment Income Tax for top earners).² In the UK, higher-rate taxpayers face 24% CGT from October 2024, with VAT charged on auction commissions and, for modern or post-war artists, an Artist’s Resale Right (ARR) royalty capped at €12,500.³

These layers add up fast. Take a work bought for $1 million in 2018 that now hammers at $2.4 million—already ~20% below its 2021 peak, according to the Wall Street Journal’s survey of blue-chip sales.⁴ Once you strip out commission and tax, the cheque you actually bank is closer to $1.7–1.8 million. In other words, a sale in today’s market can erase roughly a quarter of the painting’s value on day one.⁽ᵃ⁾⁽ᵇ⁾ And this is before adding in shipping, insurance, or bespoke marketing costs that the houses often pass on to consignors.

That arithmetic helps explain why, even as global art sales slipped 12% to $57.5 billion in 2024,⁵ the market for art-secured credit has grown steadily. Deloitte estimated the outstanding loan pool at $29–34 billion in 2023, with forecasts pushing toward $40 billion by 2025.⁶ In other words, while transactions slowed, lending volumes expanded—a sign that collectors and estates are increasingly choosing to finance rather than liquidate.

The loan alternative

Specialist lenders will typically advance 40–60% of a vetted appraisal.⁷ The cost comes in two parts:

• a mid-teens fixed annual coupon
• an origination fee of 3–4% on the loan amount.

At 50% loan-to-value, a 14% coupon translates to about 7% of the artwork’s market value per year in interest. Layer on the one-off origination charge, and the first-year cost rises to roughly 8.5–9% of asset value; thereafter it normalises at 7%.

Set the two flows side by side. A sale crystallises 26–29% in costs immediately. A loan bleeds ~7% per year, with the origination fee front-loaded in year one. On that math, the breakeven horizon, the moment cumulative loan carry equals the sale haircut, sits between years three and four. At lower leverage or tighter terms, it stretches comfortably past five.

Why borrowing preserves optionality

The advantage isn’t only mathematical. Selling locks in not just fees and tax but the opportunity cost of having exited at the bottom. Once a painting passes under the hammer, its price becomes a permanent comp in the auction record, marking down the rest of the collection with it. By contrast, a loan valuation is private and doesn’t reset public benchmarks.

Borrowing also gives you timing control. You can sit out a thin bid environment while UHNW allocations to art have already slid from 24% in 2022 to 15% in 2024,⁸ levels that history suggests will mean-revert as broader wealth portfolios rebalance. That means an artwork forced into market today at a discount may well find stronger demand in the next cycle—or in the hands of a future generation of collectors whose tastes rotate back.

Flexibility matters too. Fixed-rate loans shield you from the volatility of rising base rates. Term sheets often allow prepayment after the first year without penalty, giving borrowers the option to refinance, repay, or sell once conditions improve. In effect, you are buying a window of time at a known cost.

Photo by Tao Qi

Risk management in practice

Of course, risks remain. Lenders monitor collateral values and can issue margin calls when appraised values fall too sharply. The Financial Times reported in 2025 that major art lenders, including Sotheby’s and Christie’s, had issued margin calls as prices slipped.⁹ But these situations typically arise when leverage is high or works are illiquid. Conservative loan-to-value ratios and cure periods built into contracts provide meaningful buffers.

Critically, the loan market has matured alongside demand. Lenders now rely on independent appraisals, regular market monitoring, and UCC-1 filings in the US to perfect their security interest.¹⁰ These protections, combined with insurance and custody arrangements, are designed to contain the tail risks that once limited the credibility of art lending as an asset-backed product.

The bigger picture

Seen in that light, an art credit line is less “expensive carry” than insurance against forced liquidation. You pay mid-teens interest plus an upfront fee to preserve the upside, to choose when and how to sell, and to keep control of an asset that still holds long-term cultural and financial value.

And crucially, by borrowing instead of selling, a collector whose works appreciate can unlock liquidity again and again, without triggering capital gains tax each time, compounding their collection rather than cutting into it. That is why, in a down market, loans are not simply a financing tactic but a strategy for preserving both wealth and legacy. With Artscapy Finance, collectors can unlock credit against their art to bid with confidence and refinance afterward, aligning capital with opportunity while avoiding forced sales.

Footnotes

(a) US Example (federal CGT, no state tax):

• Hammer price: 2.4
• Seller’s commission (10%): 0.24
• Federal collectibles CGT (28% of gain; 2.4 – 1.0 = 1.4): 0.392
• Net proceeds = 2.4 – (0.24 + 0.392) = 1.768
• Effective loss relative to hammer = (2.4 – 1.768) ÷ 2.4 = 26.3%
• *Source: IRS Topic 409 (collectibles taxed at 28% max).*²

(b) UK Example (higher-rate taxpayer, 24% CGT):

• Hammer price: 2.4
• Seller’s commission (12%): 0.288
• VAT on commission (20% × 0.288): 0.058
• ARR (capped at €12,500 ≈ 0.011): 0.011
• CGT: (2.4 – 1.0 – 0.003 AEA) × 24% ≈ 0.335
• Net proceeds = 2.4 – (0.288 + 0.058 + 0.011 + 0.335) = 1.709
• Effective loss relative to hammer = (2.4 – 1.709) ÷ 2.4 = 28.8%

*Sources: HMRC CGT rates; HMRC VAT Auctioneers’ Scheme; DACS ARR.*³

Sources

1. Axios — “Auction pricing is about to become a lot more transparent.” Feb 1, 2024. (Sotheby’s 10% seller’s commission).
2. IRS — Topic 409: “Capital Gains and Losses.” Updated Jul 8, 2025 (collectibles CGT 28% max).
3. HMRC — “Capital Gains Tax: rates and allowances” (18%/24% from Oct 2024); VAT Auctioneers’ Scheme; DACS “Artist’s Resale Right” (€12,500 cap).
4. Wall Street Journal — “The Worst Performer in Billionaires’ Portfolios? Trophy Art.” Jul 18, 2025 (blue-chip values ~20% below peak).
5. Art Basel & UBS Global Art Market Report 2025 — Apr 2025 (global sales $57.5bn in 2024, –12% YoY).
6. Art Basel & UBS Global Art Market Report 2025 citing Deloitte (art-backed loans $29–34bn in 2023; ~$40bn by 2025).
7. Art Basel — “How to finance your art collection.” Jan 2024 (LTVs usually 40–60%).
8. Art Basel & UBS Survey of Global Collecting 2024 — Oct 2024 (allocations to art fell from 24% in 2022 to 15% in 2024).
9. Financial Times — “Art lenders issue margin calls as painting prices fall.” Mar 2025.
10. JD Supra — “Art as Collateral: The Legal Landscape…” 2023 (UCC-1 filings to perfect lender’s security interest).