Bonhams Valuation team can assist UK-based individuals, executors and their professional advisors with the complexities of the various heritage tax schemes available in the UK. Executors and individuals can, in the right circumstances, utilise these schemes to mitigate capital taxes.
HMRC'S CONDITIONAL EXEMPTION
HMRC's Conditional Exemption Scheme allows the recipient of a gift of heritage property, which gives rise to an inheritance tax charge, and in certain circumstances, a capital gains tax charge, to apply for conditional exemption so that the tax liability attaching to the property is deferred.
The heritage property, which can include works of art, objects and manuscripts, must be 'pre-eminent', meaning that it is considered outstanding for its national, scientific, historic or artistic interest. HMRC will consult the Arts Council for advice on whether the property meets this test.
In order to qualify for conditional exemption, the owner must give certain undertakings to HMRC, the most important of which is to allow reasonable public access. The public access requirement can be satisfied either by granting access 'in situ' or, for example, by loaning a work of art or object to a public museum or gallery. It is sometimes possible to make a loan for an extended period so as to satisfy the public access requirement for a number of years.
If the new owner is able to successfully obtain conditional exemption, inheritance tax only becomes payable on their death, or if they were to make a gift of the property, or sell it, to another party during their lifetime. Other than on a sale, it may be possible to continue the exemption if whoever receives the property agrees to continue the undertakings.
If an owner of conditionally exempt property no longer wishes, or is unable, to comply with the undertakings agreed with HMRC, it could be gifted or sold by private treaty to a qualifying UK museum or gallery, to deal with the deferred tax charge.
How Bonhams can help: We provide an opinion to our clients and their professional advisors on the potential success of any application with regard to the pre-eminent status of heritage property. We will prepare a submission of value and presentation of the case to HMRC and Arts Council England . We will also liaise with the relevant galleries, museums and archives to negotiate private treaty sales.
ACCEPTANCE IN LIEU
HMRC's Acceptance in Lieu Scheme allows an inheritance tax liability which arises on death to be satisfied (wholly or in part) by heritage property, including works of art and other objects. The scheme means that many important objects are protected for the long-term benefit of the nation by being placed in certain UK museums, galleries and archives.
As with the other heritage schemes, the property must be considered 'pre-eminent', meaning that it is outstanding for its national, scientific, historic or artistic interest. HMRC will consult the Arts Council England for advice on whether the property meets this test.
The amount of inheritance tax that can be satisfied by a pre-eminent work of art or object is calculated based on its agreed market value. It is usual practice to operate what is known as the 'douceur' in relation to Acceptance in Lieu arrangements which means that 25% of the tax that would have been payable on an open market sale is remitted to the taxpayer.
One advantage of Acceptance in Lieu, as opposed to sale of a conditionally exempt item by private treaty to a public institution, is that there is no need for the institutional buyer to raise funds to buy the property. Once it is accepted, it will be allocated to a museum without the need for fundraising by the relevant institution.
There is also scope to make a hybrid offer to HMRC, if the value of the work of art or object being offered exceeds the amount of tax due. A work of art may be accepted in lieu of a tax liability and the public institution it is allocated to may also make a cash payment to the offerer, assisted by funding bodies, to reflect the difference between the tax liability and the value of the work.
How Bonhams can help: Bonhams Tax & Heritage team will work with clients and their professional advisors to provide an opinion on the pre-eminent status of the heritage property being offered and the AIL submission, including a valuation, to HMRC and the Arts Council. We will also assist with any subsequent negotiations.
CULTURAL GIFT SCHEME
The Cultural Gift Scheme allows for an individual or a company with a tax liability to offer pre-eminent works of art, objects and manuscripts, for example, the Symons Collection made up of items of outstanding scientific interest, to be donated to a UK museum or qualifying body for the benefit of the nation.
The donor (either an private individual or company with a UK tax liability) may set up to of 30% (20% for companies) of the value of qualifying gift against an income tax or capital gains tax liability in one year, although the amount can be spread over a period of five years.
The valuation of the qualifying gift will be based on its agreed market value and is presented to the Arts Council AIL panel for assessment of its pre-eminence. There are no restriction on the age of the property offered or the period of ownership.
How Bonhams can help: We will work with our clients and their professional advisors to prepare a market valuation of the item(s) and give an opinion on its pre-eminent status in terms of its artistic, scientific, historical or educational significance. Bonhams will prepare the submission to the AIL panel on the donor's behalf, and deal with any subsequent negotiations, working alongside the donor's professional advisors.
CONTACTS
Harvey Cammell
Global Director of Valuations & Private Collections and Deputy Chairman of Bonhams UK
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Natalie Voorheis
Director of Valuations at Bonhams, London
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Louise Williamson
Tax and Heritage Consultant
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