11 November 2022
The conservation and protection of items of national and cultural significance for the benefit of the public has long been public policy and is supported by a number of favourable tax incentives.
The Conditional Exemption relief from inheritance tax (IHT) was designed to give effect to the general policy of allowing the conservation of items of national heritage by enabling them to be transferred without IHT (and CGT in certain circumstances) on the proviso that the new owner undertakes to preserve the property, allow reasonable public access and keep any works of art (or other items) in the UK.
To be eligible for relief, the item in question must be “pre-eminent” for its national, scientific, historic or artistic interest. It may be possible to fulfil the public access requirements by arranging for the item to be loaned to a public institution.
If accepted, IHT and/or CGT are then deferred until a chargeable event occurs causing the conditional exemption to end and the tax is “clawed back”.
Acceptance in lieu
Owners of pre-eminent artwork or historic houses who do not wish to commit to the public access requirements (which can be onerous if you do not already allow public access) may wish to consider the Acceptance in Lieu (AIL) scheme as an alternative. The AIL scheme is available to anyone who has a liability to IHT or Estate Duty and allows the IHT/Estate Duty liability to be settled using heritage property.
The types of property accepted (which will be assessed by a panel) include:
- objects (or collections) of pre-eminent importance on the grounds of their national, scientific, historic or artistic interest;
- objects associated with an important historic building in public ownership or belonging to certain charities such as the National Trust; and
- land or buildings which are important to the national heritage (including buildings of historic and architectural importance and land of historic or scientific significance).
If accepted, the particular item is allocated to a national museum, gallery or public building with public access. It is possible to make an offer in lieu conditional upon acceptance upon it being allocated to a particular museum or gallery.
The cultural gifts scheme
If you are considering making a gift of a heritage asset to the nation during your lifetime, the Cultural Gifts Scheme may be of interest. This scheme enables UK taxpayers to donate important works of art and other heritage objects to be held for the benefit of the public or the nation. In return, donors receive a tax reduction based on a set percentage of the value of the item they donate (for individuals this is 30%). The donor can elect to set the reduction against their Income Tax or their Capital Gains Tax bill for the year, in which the donation is made within the subsequent four years. The gift itself is not treated as a taxable event for either Capital Gains tax or IHT purposes.
The same qualitative criteria of pre-eminence as are used for the acceptance in lieu scheme are applied to assess whether the cultural property being put forward under the scheme is of the appropriate quality.
The content of this article is for general information only. It is not, and should not be taken as, legal advice. If you require any further information in relation to this article please contact the author in the first instance. Law covered as at November 2022.