Estate planning is a multifaceted process, with one key consideration being how gifts from your estate might influence Inheritance Tax (IHT).
For those in possession of distinguished objects or collections, there are two beneficial tax schemes worth exploring.
Understanding Distinguished Objects
Distinguished objects or collections are assets recognised for their national significance, or those holding scientific, historic, or artistic value. This can include but isn’t limited to artworks, manuscripts, books, land, and scientific artifacts.
Acceptance in Lieu (AiL) Scheme
Through the AiL scheme, individuals responsible for IHT can address it by donating objects of cultural, scientific, or historical significance to the country. These items then enrich public collections, thereby conserving the nation’s rich cultural fabric.
An independent panel, the Acceptance in Lieu Panel, evaluates the items proposed in lieu of the tax. Once accepted, the value of these items offsets the tax due.
As a result, the total taxable estate value is reduced by excluding the item’s value from the estate’s appraisal.
For inclusion in the AiL scheme, one must indicate this preference in their Will. The maximum relief achievable through this scheme is set at £30 million.
Cultural Gifts Scheme
The Cultural Gifts Scheme facilitates a tax offset when assets (excluding land) are donated to the public while you’re still alive. The same AiL Panel guides on the valuation of assets within this framework.
Upon donation, a tax relief corresponding to the asset’s value is granted. This relief can be leveraged against Income Tax, Capital Gains Tax, or Corporation Tax and can be extended over a five-year span.
Items bestowed to the public or nation subsequently become exempt from IHT since they’re no longer categorised as part of the estate.
Prior to making a decision to donate items nationally, one should thoroughly assess its implications on both the estate and beneficiaries, as well as any potential associated liabilities. Given the intricacies of such decisions, consulting with expert tax advisors is recommended.
If you would like advice on IHT and gifting, please contact your Seymour Taylor representative today or email enquiries@stca.co.uk or call 01494552100.
This blog is for guidance only, professional advice should be obtained before acting on any information contained herein. The information was correct at the time of publishing 30 August 2023.