In the last few weeks, two estates have settled significant Inheritance Tax (IHT) bills by donating works of art to the nation under the government’s acceptance in lieu scheme.
The Duke of Northumberland’s estate has donated a Van Dyke painting to the Bowes Museum in County Durham to settle a £2.8m bill and the Lucien Freud estate have donated some of his sketchbooks, drawings and letters to the National Portrait Gallery in London to settle a £2.9m bill.
The scheme operates so that land, buildings, pictures, books, manuscripts works of art etc that are considered to be of particular cultural value can be donated to the nation, in lieu of IHT that is due from an estate. The idea behind it is to prevent estates from being forced to sell these items to private buyers, so that they can pay the IHT. Instead, these items of value are preserved for the public benefit.
Currently, this scheme is used by about 30 taxpayers each year and total tax liabilities settled have been approximately £10m a year for the last three years.
There is a very strict test for what can be accepted under the scheme and the test is that the item to be donated must be ‘pre-eminent for its national, scientific, historic or artistic interest’. Naturally, this is a subjective test and it has to be approved by both HMRC and the Secretary of State for Culture, Media and Sport, the latter being advised by the Museums Libraries and Archive Council.
In deciding whether an object is pre-eminent, the following points will be considered:
1. Does the object have a particularly close association with the history and national life of the country;
2. Is the object of special artistic or art historical interest;
3. Is the object of special importance for the study of some particular form of art, learning or history;
4. Does the object have an especially close association with a particular historic setting?
An alternative to the acceptance in lieu scheme, is the conditional exemption scheme, which operates in a similar way, but where the objects that qualify for the scheme stay in private ownership and in return, the IHT is deferred, possibly indefinitely. Certain conditions are made regarding the object’s preservation and public access to it. These must be adhered to going forward for the conditional exemption to continue.
These schemes are seen as a useful way of keeping items of particular cultural interest in the UK and available to be seen and enjoyed by members of the public. In reality, not many of us have a Van Dyke or a Lucien Freud at our disposal, but we may benefit from those that do.