29 September 2022 - Article
Arts Council England has published its 2019/2020 annual report which shows that last year a record total of £64.5 million worth of art came into public ownership through HMRC’s Acceptance in Lieu (‘AIL’) scheme and the Cultural Gifts Scheme (‘CGS’). It was also the first time that the entire budget of £40 million, which is the amount of tax that can be settled under both schemes, was fully utilised.
AIL allows an inheritance tax liability which arises on death to be paid (wholly or in part) in kind with art or cultural objects which are considered pre-eminent. Pre-eminence is a status that is granted to outstanding land and buildings and works of art and other objects that are of importance for their national, scientific, historic or artistic interest or that are historically associated with an outstanding building. AIL allows many important objects to remain in the UK for the long-term benefit of the nation by placing them in the ownership of public institutions.
There is a specific (and quite complex) calculation to determine how much inheritance tax can be satisfied by a work of art or cultural object, which is based upon its market value less the amount of tax that would have been payable on an open market sale. A douceur of 25% of that notional tax amount is added back on to give the total amount of tax that an acceptance in lieu can satisfy.
The Cultural Gifts Scheme is specifically designed to encourage philanthropy in the cultural sector and allows pre-eminent objects to be gifted to a qualifying museum or gallery in satisfaction of an income tax or capital gains tax liability up to a maximum of 30% of the agreed value of the object. Similarly, a corporation tax liability can be reduced by up to a maximum of 20%. The donor also has the added satisfaction of seeing their donation on display in a public gallery or museum in their lifetime. The Arts Council reports that last year saw the highest number of cultural gifts accepted since the scheme began.
Objects taken through these schemes in 2019/2020 have been allocated to public collections throughout the UK and are available for everyone to engage with and enjoy. In September 2020, Paul Gauguin’s Avant et Après, considered the most important manuscript in the history of art, was allocated to London’s Courtauld Gallery after it was gifted to the nation in lieu of a £6.5 million inheritance tax bill. The manuscript was acquired by the German textiles manufacturer Erich Goeritz in the early 20th century.
Among the major works accepted under AIL was Edouard Manet’s portrait of his relative Jules Dejouy allocated to the National Museum Wales, also acquired by the German textiles manufacturer Erich Goeritz in the early 20th century. Other works accepted in 2020 included Jean-Étienne Liotard’s large-scale work The Lavergne Family Breakfast which was allocated to The National Gallery in satisfaction of £8,760,000 of tax. The National Gallery also received paintings by Thomas Gainsborough and Sir Thomas Lawrence.
A group of monoprints by Russian Constructivist artist Naum Gabo were accepted under the Cultural Gifts Scheme and allocated to the Pier Arts Centre in Orkney, the Scottish National Gallery of Modern Art in Edinburgh, The Hepworth Wakefield and Cambridge’s Fitzwilliam Museum and Kettle’s Yard.
The AIL and CGS should be considered by art collectors as part of their tax and succession planning. The Arts Council report demonstrates that, during these difficult times posed by the pandemic, the AIL and CGS Schemes continue to play a crucial role in supporting the UK’s museums, galleries, historic houses, archives and libraries by providing the opportunity for them to acquire important works of art that they may not be able to otherwise, particularly in the current financial climate.