Buyer's Premium

Before bidding in an auction you should always be aware of the buyer’s premium. The buyer’s premium is a percentage of the final hammer price that you have to pay to the auction house. This tends to be around 18%-25% plus VAT making the total around 21%-30% inclusive of VAT. Therefore, if you buy a lot for £1,000 you may pay up to £1,300 when the buyer’s premium is added. For that reason, you must account for the buyer’s premium when working out your bidding limit.

For lots over a certain amount, the auction house will reduce the buyer’s premium for the amount over the threshold. This can vary but tends to be for lots over £50,000 so it will not affect the majority of buyers. This reduction tends to be around 5% lower than the usual rate. Calculating this with a standard buyers premium of 25% + VAT (30%) on a £80,000 lot would give you to a total of £104,000 (£50,000+(25%+VAT)=£65,000) + (£30,000+(20%+VAT)=£39,000).

Depending on the lot’s VAT status you may have to pay more or less VAT. The calculation above is using the auctioneer’s margin scheme which is most commonly used for lots sold in the UK. This means that you only have to pay VAT on the buyer’s premium and not on the total hammer price. For example, using the example of a lot sold for £1,000, you are only paying VAT on the buyer’s premium of £250: £1,000+(25%(£250)+VAT)=£1,300. The other two VAT types to be aware of are standard VAT and zero VAT.

If a lot is on the standard VAT scheme and not on the auctioneer’s margin scheme you have to pay VAT on the hammer price and the buyer’s premium. Using the £1,000 example this would come to a total of £1,500 (£1,000+VAT=£1200) plus buyers premium of 25% on £1,000 (£250+VAT=£300). Lots that are standard VAT are usually marked in the catalogue with a * or †. The symbol used should be explained in the catalogue or on hover when on the website. Lots are usually on standard VAT when being sold by a VAT registered business. It is possible when paying for your lots to ask for the invoice to be made VATable. In this case, all lots (excluding zero-rated) will be made ‘standard’ so VAT is added to the hammer and buyers premium. This again is done by VAT registered businesses when purchasing as they can reclaim the VAT paid at a later date. This is a fairly common occurrence so if you own a VAT registered business don’t be afraid to ask the auctioneer if this is possible.

If you purchase a zero-rated lot you do not need to pay VAT on the hammer price or the buyer’s premium. Therefore a £1,000 lot would come to a total of £1,250 (£1,000+£250). Again this will be marked in the catalogue or on the website. There is not a standard symbol so it is best to check your auctioneer’s terms & conditions. Items that fall under zero VAT are books, maps, magazines, newspapers etc. Similar to standard VAT it is possible to ask for a VAT-exempt invoice from the auctioneer. This is only relevant if you are buying from abroad and don’t need to pay VAT in the UK.

For more detailed information on VAT and how this relates to both buyers and vendors please read the documentation available on the HMRC website here.

Certain sale types may have a reduced buyer’s premium. This is sometimes seen for wine & spirits sales. If this is the case it will be clearly stated in the auction description or the terms & conditions. You may also need to pay ARR (Droite de suite) on top of the hammer price and buyers premium. This is a charge paid on ‘works of art’ over €1,000 (around £850). It is on a sliding scale but the lowest band is 4% up to €50,000 hammer. For more information on ARR please read my article here.

Finally, when viewing an auctioneer’s sale results on their website most results are given excluding the buyer’s premium. So if a Durer print sold for £1,000 it would be shown on their website as being sold for £1,000. Some auctioneers publish results including the buyer’s premium. This is usually obvious as the results don’t follow standard auction increments. If an item sold for £850 it would be shown as being sold for £1,020 etc. Again, this should be explained on the lot details webpage, either on hover or in text near the footer. For more information on bidding and bidding increments please see my article on the subject here.

This concludes my article on buyer’s premium. For more information on the topic please read the auctioneers website. It is usually clearly explained on their ‘how to buy’ page or they could easily go through it with you on the day or via the phone.