30 August 2011

Consultation: Gifts of pre-eminent objects and works of art

Alana Petraske
Partner | US


The Chancellor’s March Budget announced that a consultation would be held this summer on proposals to encourage donations of pre-eminent objects and works of art. HM Treasury has now released a consultation paper setting out additional detail on this proposal and seeking responses to a series of key questions that will inform the detail of the scheme. Those expecting to make lifetime gifts of art to their favourite charity (and those charities) may be disappointed in the limited scope of the regime, but for some donors this incentive may prove compelling.

In the run up to the March Budget there was cautious optimism amongst many in the sector about the introduction of tax relief for lifetime gifts of art to charity. Though no concrete proposals were included in the Budget, a consultation to be held in the summer was announced. The consultation document has now been published and the scope of the government’s policy proposals is clearer.

Unlike the US scheme where donors can obtain a tax deduction for gifts of artwork to any recognised charity, the current UK proposal is more limited in scope. Gifts must be ‘pre-eminent’ and, crucially, must be given to the UK as a nation, not to a donor’s favourite charity to realise the value by way of sale. In addition, relief will be limited to a fixed percentage of the agreed value of the gift as well as subject to an overall annual cap for the whole of the scheme and possibly limits per-gift and/or per-donor.


Unlike some other jurisdictions, the UK does not currently provide tax relief on lifetime gifts of works of art to charity. Considering the mature market for valuation and the ‘acceptance in lieu of tax’ scheme that already exists for gifts of art work on death, an extension of relief to lifetime gifts has been long called-for, most particularly in the 2004 Goodison review, ‘Securing the Best for our Museums: Private Giving’.

The Treasury’s current consultation provides more detail on the proposed scheme as well as identifying key areas on which responses are being sought from interested parties.

The proposed scheme

The scheme aims to incentivise the giving of artwork and other objects of particular significance by providing a reduction in tax liability to a donor who gives to the nation a ‘pre-eminent’ object or a collection of objects. These will include pre-existing works of art (but not newly commissioned work) and items of historic importance, but will not extend to gifts of land and buildings, which are already the subject of a separate relief.

Gifts are to be made by an offer and acceptance process between the donor and Government on behalf of the nation – no gifts will be made under this scheme to specific museums or galleries, and this scheme will not enable donors to gift a valuable object to a charity for resale.

The Acceptance in Lieu of Tax scheme (‘AIL’) which currently operates in relation to gifts on death will continue to operate in parallel with the proposed new scheme. Unlike the AIL however, the proposed scheme will not involve receipt of works to satisfy existing tax liabilities. Instead, where it applies, the donor will receive a tax reduction for his or her gift based on a fixed percentage of the agreed value of the object that is being donated.

Though the detail has yet to be revealed (and in may case may be as yet decided), it is clear at this stage that the relief will only be available in limited circumstances and following a formal procedure involving the following broad stages:

  • A donor will offer an object they consider to be pre-eminent, having arranged and paid for its market valuation. The donor may specify a preference for the ultimate destination, but this will not be bindin
  • An expert panel (based on the existing AIL panel of experts) will consider whether the object is ‘pre-eminent’ and confirm the valuation of it with the donor or advise the donor of an alternate valuation, making a recommendation to the Secretary of State for the Department for Culture, Media and Sport (DCMS).
  • DCMS will take the final decision bearing in mind the aggregate cap for all gifts under the AIL and the proposed scheme of £20 million per year. DCMS will then inform HM Revenue and Customs (HMRC), which will contact the donor confirming the tax reduction and adjust the amount of the donor’s liability to tax
  • The object is accepted for the nation, not for a particular museum or gallery. The expert panel will then lend the object on behalf of the Government to a museum or gallery open to the UK public for its display and safekeeping.

Key issues for consultation

The consultation seeks particular feedback on several key issues that will go to the heart of the success of this giving incentive.


What is, and is not, an eligible ‘pre-eminent’ object is an important area of the consultation. Under the AIL, an object is ‘pre-eminent’ if it is “of particular historical, artistic, scientific or local significance, either individually or collectively, or associated with a building in public ownership, such as a National Trust property, which will be expected to have public access for at least 100 days each year. Objects must be in acceptable condition.” In addition a set of guidelines are used by the existing AIL panel to assess pre-eminence. The consultation seeks views on whether a new definition is necessary or whether this may cause confusion for donors unnecessarily.

Eligibility of donors

The AIL is by definition available only to individual donors as it a scheme for the satisfaction of inheritance tax, a personal liability. Because the proposed scheme will be limited to an overall cap of £20 million per year in available relief, the consultation seeks views on whether the scheme should be opened up to corporate entities and trusts that may wish to donate pre-eminent objects. Competition for the limited relief would of course be increased by a wider donor pool, but it would also potentially encourage giving by corporates.


As above, the overall cap on the relief available under the proposed scheme and the AIL is £20 million in total. This raises the issue of how relief will be allocated where there are more eligible pre-eminent objects in a year than available relief funds. The consultation proposes a first-come-first-served approach, to be reviewed after two years. This might result in allocating the whole available relief early in the year if early eligible objects are particularly valuable. Objects otherwise eligible but received late in the tax year would then lose out in that year. The alternative proposed is that all applications for relief be reviewed by the expert panel at specified dates after the close of a given tax year.

Allocation to particular institutions

Under the AIL, donors may nominate the institution to receive the donated object and this nomination is in most cases followed. Where it cannot be, interested institutions may apply to the expert panel. The consultation seeks views on this process for the new scheme.

Conditions placed on institutions

When pre-eminent objects are loaned to particular institutions under the proposed scheme, the institution will be responsible for maintaining and safeguarding the object. Public access and display is central to the proposed scheme as the relief is given to donors in exchange for a gift to the nation. The consultation seeks responses on what conditions should be imposed on loans and in particular how access by the public can be ensured.

The tax reduction

It has been decided that the relief will amount to a reduction in tax that is calculated as a fixed percentage of the agreed value of the object. The alternative to this approach would be to relate the relief to the donor’s tax position. The consultation is seeking responses on what the fixed rate should be and proposes 25% as a result of informal discussions with interested parties. The higher the percentage, the fewer items overall will come within the annual cap, so the consultation is seeking to balance the incentivising effect of a larger relief with the desire to maximise the number and value of gifts to the nation. 

The tax relief will be available in respect of income and capital gains tax (and corporation tax including in respect of capital gains if the scheme extends to corporate entities). It is not yet clear if donors will be able to carry back or forward and part of the deduction to earlier or later tax years, although the consultation document may suggest that unused relief may be given against liability of other years.

Limitation on relief

The annual cap on the relief is not open for consultation. However, to avoid the scenario where one or two very valuable gifts use up the whole of the year’s relief budget, the consultation is seeking views on whether a limit should apply to the relief received in respect of any one gift, or alternatively (or additionally) by any one donor. A cap of £1 million per gift or £2 million per donor is mentioned in the consultation so that a donor giving three unrelated objects in a year with a value of £4 million each would for example be able to receive the full relief (at 25%) for two out of the three gifts, but nothing for the third. If the gifts were instead valued at £10 million each, the donor would receive the £2 million maximum only.

What happens next?

Interested parties should consider responding to the targeted consultation questions before the consultation formally closes on 21 September 2011.

For a full copy of the consultation document click here.

We will be following the consultation closely and will provide further updates in due course.

Alana Petraske Partner | New York

Category: Article