UK: Gifts Of Pre-Eminent Objects And Works Of Art to The Nation: Government Consultation

Last Updated: 15 August 2011
Article by Robert Blower and Lyndsey L.M. West


The Government has recently released details of a proposed new incentive for individuals to donate "pre-eminent" historical objects to the nation. The proposals follow on from the Government's Giving White Paper of 23 May 2010 and the Budget announcement of 23 March 2011 and are set out in a consultation document published on 29 June 2011 by HM Revenue and Customs ("HMRC") and HM Treasury.

Assuming that it is enacted as set out in the consultation, the new incentive will be available to individuals who make qualifying gifts during their lifetime to public institutions. The relief will work by allowing such donors to offset a specified percentage of the value of the gifted object against their income and capital gains tax liability. There will be no capital gains tax ("CGT") or inheritance tax ("IHT") on the gift (unless IHT has been deferred on a previous gift under the so-called conditional exemption, in which case the deferred IHT could become payable on the subsequent "gift to the nation").

he relief complements the so-called acceptance in lieu scheme ("AIL scheme") under which heritage property offered to the state in lieu of IHT results, in effect, in a reduction of the IHT liability on death. Unlike the AIL scheme, the new relief will take effect only for pre-eminent moveable objects (chattels), not land or buildings. The new scheme will share with the AIL scheme the annual limit (currently set at £20 million) available for relief. Therefore the total reduction in tax liabilities under both schemes each year must come within the £20 million limit.

The proposed new scheme is also somewhat different from the existing arrangements under which individuals may sell "pre-eminent" items to museums and galleries by private treaty, accepting a lower price paid by the institution on the basis that the sale is free of CGT. However, this depends upon institutions having sufficient funds to purchase such items which, even at discounted prices, will not often be a realistic expectation, especially in the current funding climate. The emphasis in the proposed new scheme is on individuals making a gift (rather than a sale) to the nation, for the public benefit.

The consultation raises a number of issues, some of which we outline below. This briefing is based on the details provided in the consultation paper, although the final form of the relief will depend on the outcome of the consultation.

How will the proposed scheme work?

The UK taxpayer wishing to take advantage of the scheme will offer an object which they consider 'pre-eminent' indicating, if desired, their preferred recipient institution for the object (although this will not be binding). The taxpayer will also be responsible for having the object valued.

The same panel of experts as for the AIL scheme will determine whether the object offered is 'pre-eminent'. 'Pre-eminence' is defined as being "of particular historical, scientific, artistic or local significance, or associated with a building in public ownership...expected to have public access for at least 100 days each year". This is the definition used for the AIL scheme.

If the panel determines that an object is pre-eminent, it will agree a fair market valuation with the donor, following which the potential tax reduction, based on a percentage of the object's value, can be calculated. The rate of the percentage reduction is not yet decided but the consultation paper suggests that "a rate of 25% of the donated object may be enough to attract people to make donations" under the new scheme.

The next step will be for the expert panel to make a recommendation to the Secretary of State for the Department for Culture, Media and Sport ("DCMS").The DCMS, with overall responsibility to ensure that the £20 million annual limit is not exceeded, will make the final decision whether the object is to be accepted as a "gift to the nation" following which the expert panel will make a final determination about where the object is to be held.

Once the relief has been agreed the taxpayer will be responsible for the cost of transferring the object to the nation. The panel, acting for the Government, will then lend the object, now national property belonging to the state, to the selected institution. Conditions will be attached to the loan to the recipient institution to prohibit sale of the object and making the borrowing institution responsible for preserving the object and displaying it to the public.

Key consultation questions

Who should be eligible for the new scheme?

The new scheme will be available to individuals but the consultation asks whether it should also be available to entities such as trusts and companies. This would enlarge the pool of objects that could be donated under the scheme and might result in trusts and companies making donations when they would not otherwise do so. On the other hand, given that the total value of relief to be shared with the AIL scheme is capped at £20 million, extending the range of eligible donors might unduly increase competition for the relief.

Given the £20 million cap on the annual amount of tax reductions, how should the relief be allocated?

The consultation paper proposes that the expert panel will consider objects for the relief on a first-come, first-served basis and once the £20 million limit has been reached no further objects will be accepted that year. However, although this decreases the administrative burden on the panel it means that if an object is presented after the annual quota has been filled it would have to be deferred with no guarantee that it would be offered again. An alternative suggestion made in the consultation paper is that the panel meets at one or more set points during a tax year to evaluate all offers together before deciding which ones to accept. However, this could be problematic as the donor's tax affairs would be uncertain until the panel had met. Moreover, the items would need to be valued before the meeting, potentially resulting in unnecessary expenses for donors whose items are rejected due to the annual limit being reached. It is for these reasons, and due to the uncertainty about the demand for the scheme, that the consultation paper indicates that the scheme will work on a first-come, first-served basis for the first two years before the results are reviewed.

How should objects be allocated to suitable institutions?

The consultation paper proposes that, as under the IHT AIL scheme, donors should nominate an institution to hold the object. If no nomination is made or the donor's choice is unsuitable, institutions are asked to apply if they wish the object to be lent to them.

How should the tax reduction be calculated?

Donors will receive a tax reduction equal to a fixed percentage value of the donated object. In fixing the rate of the percentage reduction in tax, the Government aims to strike a balance between offering an incentive to donors while working within the annual £20 million limit of total tax reductions. The rate of 25% of the value of the donated object has been suggested initially. Therefore if a pre-eminent painting was agreed to have a value of £100,000 the donor could expect 25% of this value, £25,000, to be deducted from their tax bill that year. Were the percentage reduction to be made higher, then fewer items could be accepted each year if the £20 million overall limit of tax reductions is retained.

It is proposed that the reduction will be available against income tax and CGT liabilities of individual taxpayers (and against corporation tax, including liabilities on chargeable gains, if the relief is to extend to gifts by corporate bodies). The consultation raises the question of whether the tax reduction will apply only to the tax year in which the donation is made, with excess relief effectively being lost if the tax deduction outweighs the tax liabilities for that year, or alternatively, whether any unused tax reduction might be carried forward to be set against the donor's tax liabilities for later years.

In view of the £20 million annual limit on tax reductions, the consultation paper suggests that a cap is applied to the maximum amount of tax reduction per object to ensure that the donation of one or two very valuable gifts do not take up the entire annual limit. There are different ways in which a cap might work. There might, for example, be an annual cap of, say, £1 million per object or per donor. Or there might be an annual cap in respect of each donor and in respect of each object. If, for example, there were a cap of £1 million of tax reduction per object and a cap of £2 million of tax reduction per donor, then if a donor gave three separate objects (not being part of the same collection) each worth £10 million, the maximum tax reduction available would be £2 million.


Under the existing Acceptance in Lieu scheme, available for pre-eminent objects on death, there is an annual limit of £20 million of tax relief. Over the past ten years the average amount of tax relief agreed each year under the AIL scheme is approximately £14 million, (although in the past two years it has averaged a much lower £10.8 million). Therefore, if the Government is serious about getting more historical objects and works of art into the public domain for the benefit of the nation, then the cap on the relief should be increased. This point apart, the proposal is welcome in providing another option for channelling objects of heritage value to our museums and galleries in a manner that is tax effective for donors. Indeed it parallels a proposal made in the Goodison Review of January 20041 . Perhaps this is a case of better late than never


1The Goodison Review – Securing the Best for our Museums: Private Giving and Government Support (2004), page 33.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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