Art and tax by Roger Crouch
Recent years have seen a determined crackdown from the Government on legitimate forms of Inheritance tax (IHT) planning. Fortunately, there are still a variety of ways to mitigate IHT.
One such route is to take advantage of heritage tax relief. Some 85,000 objects qualify for this relief and their owners have saved more than £1 billion in IHT over the last twenty years. Officials believe that as many as one million unregistered items currently in private hands could also qualify.
Rare treasures including one of the most important collections of Mozart scores in the world and a couple of Gainsborough paintings have all been given to the nation in recent years to settle IHT. Many London museums and galleries hold artefacts and works of arts used to settle IHT.
If you choose to give items of national interest to the nation on your death, their value can be used to offset IHT on the rest of your estate. According to Arts Council England, IHT bills were reduced by £17.4 million in 2018 by this scheme.
Art, furniture, and other moveable objects – known as chattels – are not the only assets that can qualify for heritage relief. Items of scientific interest, properties of historic interest and land of outstanding beauty can also be exempted. The tax system is designed to encourage private owners to retain heritage assets as long as they give public access to them.
Heritage advisory services must deem that the items or places are of interest to qualify. There are two options open to you if you believe that you have an object that might pass the test: conditional exemption or offers in lieu.
Introduced in 1975, the conditional exemption scheme aims to prevent IHT from forcing owners to sell items of national interest that they have inherited. Only those inheriting the object of property can apply and applications must be made within two years of the inheritance taking place.
Owners must make the objects available to the general public – generally free of charge – on a certain number of days each year. If they do not comply with this, a tax charge will be made.
Those concerned that burglars might locate their homes through the listings of all items granted the exemption, often protect themselves by designating another point of contact, such as a solicitor. Items must also be kept in good condition.
Offers in lieu are slightly different. With this scheme it does not matter how the object was obtained and the owner can retain sole access to the item during their lifetime but it must be left to the nation in their will. The item will then be placed in a suitable institution when the owner dies. The executors can then apply for IHT relief based on the market value of the gift – in some cases this can clear the whole IHT bill.
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