Gifts to the nation and their impact on Inheritance Tax
Posted on 26th July 2023
There is a lot to consider when estate planning, including how gifting parts of your estate will impact Inheritance Tax (IHT).
If you own pre-eminent objects or collections, there are two tax relief schemes that you should consider.
What are pre-eminent objects?
Pre-eminent objects or collections are assets that are of interest to the nation or hold scientific, historic, or artistic significance.
They could range from artworks, books, manuscripts, land, scientific artefacts and more.
Acceptance in Lieu (AiL) scheme
The AiL scheme lets those liable for IHT settle it by transferring culturally, scientifically or historically important objects to the nation. These items then become part of public collections, helping to preserve the nation's cultural heritage.
The Acceptance in Lieu Panel independently assesses the items offered instead of tax. If approved, the items are considered as covering the tax owed up to the value of the accepted item.
Consequently, the total taxable amount of the estate is decreased, since the value of the item is left out of the estate's valuation.
To be considered for the AiL scheme, you must specify your intentions in your Will. The maximum tax relief from this scheme is £30 million.
Cultural Gifts Scheme
The Cultural Gifts Scheme allows for a tax reduction when assets are donated to the public during your lifetime, although this doesn't include land. The Acceptance in Lieu Panel also provides guidance on the value of assets under this scheme.
At the time of donation, a tax relief that is proportionate to the value of the asset is provided. This relief can be applied to Income Tax, Capital Gains Tax, or Corporation Tax and can be spread over five years.
Once an item is donated to the public or nation, it is then exempt from IHT as it is no longer part of the estate.
Before deciding to gift items to the nation, it's important to understand the impact on the estate and beneficiaries, and also the potential liabilities. For these complex decisions, it would be useful to get advice from professional tax advisors.
Need advice on estate planning and Inheritance Tax? Contact us.
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