Tax Deductions for Art Gifts - United Kingdom

The Acceptance in Lieu (AIL) Scheme for art enables taxpayers to transfer important works of art and other heritage objects into public ownership while paying Inheritance Tax, or one of its earlier forms. The taxpayer is given the full open market value of the item, which is then allocated to a public museum, archive or library.   The AIL scheme allows people to offer items of cultural and historical importance to the state in full or part payment of their inheritance tax, capital transfer tax or estate duty.  

The scheme offers clear tax benefits. Items are generally worth at least 17% more if offered in lieu of tax than if sold on the open market at the same price, because tax would have to be paid on the amount sold for. The MLA-AIL Panel advises clients and HM Revenue & Customs on which items are acceptable in lieu of exemption from Inheritance Tax or Capital Gains Tax. To qualify for acceptance in lieu of tax, items must be of national, scientific, historic, artistic, architectural or local significance, often works of art, where aboriginal art is likely to represent a number of those.

Offers in lieu are made to HM Revenue & Customs. They must be approved by the Secretary of State for Culture, Media and Sport (or the appropriate Minister in the devolved governments in Scotland or Wales) who is advised by MLA's Acceptance in Lieu Panel. This Panel consists of independent experts, who seek specialist advice on the object offered.  In the light of that advice, the Panel recommends whether or not the object in question is pre-eminent and assesses its open market value. The Panel's recommendations are made to the Secretary of State for Culture, Media and Sport (or the appropriate Minister outside England), who decides whether or not an item should be accepted.

HM Revenue & Customs cannot 'give change' if the 'special price' is higher than the tax you have to pay. An institution may be prepared to pay you the difference if you make your offer conditional on the object being allocated to them. Interest on the amount of tax settled by the offer will normally stop running from the date of the offer. There is a reduction of the amount of tax payable on the estate.  In certain cases the object can stay in situ, remaining an integral part of a collection, even though the ownership will have changed. These guidance notes outline the main points of the scheme. Inevitably each case will be different.  

After reading this general guidance we suggest you contact Capital Taxes Manager, MLA, Victoria House, Southampton Row, London, WC1B 4EA. Telephone: 020 7273 1456 Fax: 020 7273 1424. Anyone who is liable for the payment of an existing inheritance tax bill can offer an object in part or whole payment of the tax. This is known as 'art Acceptance in Lieu', hence the title of the scheme. All advice on pre-eminence, valuation, condition and allocation (except for the allocation of manuscripts) is managed by MLA.  If you have an object which you would like to put forward, please write to Capital Taxes Heritage Team, HM Revenue & Customs, Ferrers House, PO Box 38, Castle Meadow Road, Nottingham, NG2 1BB. It would be helpful, although not essential, to send a copy to the Capital Taxes Manager at MLA, Victoria House, Southampton Row, London WC1B 4EA, including: 

  • A valuation and justification of the valuation; 
  • An explanation of why the object is considered pre-eminent;
  • A description of the object; 
  • At least three photographs, preferably in colour; 
  • Details of where the item can be inspected and with whom inspection should be arranged; 
  • Evidence that the offeror has good legal title to the object; 
  • Details of the occasion which gives rise to the payment of tax (send to HM Revenue & Customs only). 

In satisfying a tax liability, an offeror is able to apply a higher proportion of the value of an object if it is offered in lieu than if the same object is offered at auction. This is because of the 'special price' or 'douceur' which is available in these cases. For example, if, in order to settle a tax liability, an estate sells an object valued at £100,000 on the open market, inheritance tax is generally payable at a rate of 40% and the estate receives £60,000. If the same object is offered in lieu, 25% of the tax that would have been payable is remitted to the estate, with the result that the object has a tax settlement value of £70,000. An object is, therefore, worth 17% more if it is offered in lieu of tax than if it is sold on the open market at the same price.  

Ireland Limits  

Irish Acceptance in Lieu Scheme, unlike the UK system, allows the value of the donation to be applied against a range of taxes including Income Tax, Corporation Tax, Capital Gains Tax, Gift Tax and Inheritance Tax.  However, just in case you think that Ireland is a paragon of enlightened tax treatment for the heritage, it should be noted that the total value of the relief given in any one year is capped at €6,000,000 (£4,000,000).

You can obtain more information on AIL Panel members by visiting http://www.culture.gov.uk
and Making Offers on Art in Lieu of Taxes in the UK by visiting http://www.mla.gov.uk

Bookmark/Search this post with: