Acceptance in Lieu – Two Birds with One Stone?

October 9, 2014

Figures released recently have revealed that, in the last ten years, over £100 million worth of inheritance tax has been settled by works of art and other heritage objects being accepted by H M Revenue & Customs instead of inheritance tax. The Acceptance in Lieu scheme has its legislative roots in the “people’s budget” of 1910. However, in recent years this scheme has expanded and in the 2014 budget it was announced that in 2014-15 the threshold will be raised from £30 million to a record high of up to £40 million worth of tax which can be offset by Acceptance in Lieu and the newly announced Cultural Gifts Scheme.

Indeed in 2013 an inheritance tax bill of over £1.6 million was settled by ownership of over 700 items from Mount Stewart House, County Down, including De Laszlo’s depiction of Edith with a Deerhound and two pairs of prehistoric giant Irish deer antlers dug from the bog on the estate being transferred to the National Trust. Other examples of items accepted include sculptures by Degas, a canvas painting by Nicholas Poussin and a collection of lyrics and letters written by John Lennon. More recently, some of Winston Churchill’s possessions have been accepted in lieu of inheritance tax from the estate of his youngest daughter.

The Acceptance In Lieu scheme can be mutually beneficial for both the taxpayer and HMRC. The taxpayer has the opportunity to contribute to the nation’s heritage whilst avoiding unwelcome inheritance tax. It has been found that, on average, donating works of art through Acceptance In Lieu has been worth 17% more than if they were sold on the open market. This scheme also allows for the taxpayer to ensure that the art is given to whichever institution he or she prefers. Indeed, in certain situations such as with the Mount Stewart chattels, the art can stay where it is. Therefore it can remain as an integral part of a collection, even though the ownership will have changed.

The obvious benefit for the museum, gallery or library which is acquiring the object is that it receives the item at no cost, or at a much reduced cost, depending on the terms of the donation. Another benefit is the fact that the scheme is designed so that objects of local importance can be retained by the relevant region.

By reading the headlines one might believe that only works of art worth millions of pounds would be considered by the arts council to be “pre-eminent” and therefore eligible for this scheme. However the figures released in recent years show that works of art valued as low as £1,400 have been accepted under AIL.

With inheritance tax currently payable at 40% of the value of estates over £325,000 Acceptance In Lieu may be a valuable option for taxpayers to reduce their tax bill whilst preserving their items of national, scientific or artistic interest for the enjoyment of posterity.

Please note; the content of this article is for information purposes only and further advice should be sought from a professional legal advisor before any action is taken.

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