Memorandum submitted by the Acceptance
in Lieu (AIL) Panel
The Acceptance in Lieu (AIL) Panel advises Ministers
in England, Scotland, Wales and Northern Ireland on items offered
in lieu of Inheritance Tax under Section 230 of the Inheritance
Tax Act 1984. The advice of the Panel is also provided to HM Revenue
To qualify for acceptance in lieu of tax items
2. valued at a price which is fair to both
offeror and the Nation; and
3. in acceptable condition.
It is the AIL Panel's role to assess whether
these three criteria are met.
Once items have been accepted by HM Government, the
Panel also advises on where the objects should be allocated.
In the last five years, the AIL scheme has brought
items with a value of £140,000,000 into public collections.
It is currently the most important means of acquisition in the
UK. Items have been allocated to museums, galleries and public
archival depositories throughout the UK and Northern Ireland.
The AIL Panel wishes to make the following submission:
The AIL system, whereby works of art, historic
material and archives, are offered in satisfaction of death duties
(ie Inheritance Tax and any of its earlier forms), is generally
felt to be working well at present. It is expected that some 40
cases, with a gross value of £35,000,000, will be concluded
during the current financial year, 2005-06.
There is one area however, that gives the Panel
considerable concern. The value of the most outstanding works
of art has risen so sharply in recent years that a major painting
by Rubens or Rembrandt may well be worth in excess of £40
million. The tax liability of deceased estates is, however, generally
well below such a sum. In consequence, if a really important
painting is offered in lieu, it will involve a "hybrid"
arrangement whereby the value in excess of the tax liability is
met by the acquiring museum or gallery through the provision of
funds equal to the gap. If, for example, a Picasso is valued at
£40 million, with a rate of Inheritance Tax of 40%, the acceptance
of the painting could settle up to £28 million of tax. If
the actual liability on the estate (excluding the Picasso) is
less than £28 million, a hybrid arrangement will be necessary.
The tax system permits a range of measures which can be put into
place during a person's lifetime to reduce the impact of Inheritance
Tax on the estate. An inheritance tax liability on the scale of
£28 million is now very rare, given the scope for tax planning
that currently exists.
Even if the liability of the offering estate
were to be as high as £10 million, this would still leave
the acquiring gallery with the need to raise £18 million
(£28 million£10 million) to secure the painting.
This sum is far beyond the purchase grant or acquisition reserves
of any UK institution. It is, therefore, highly desirable that
additional funds should be made available either through the Heritage
Lottery Fund (HLF) or National Heritage Memorial Fund (NHMF) to
help such acquisitions. These sources, should, if necessary, be
supplemented by special government grants.
A happy example of this has occurred recently.
In 2003, the Trustees of the Sutherland Estates offered a Titian
to the Nation in lieu of Inheritance Tax with the condition that
it should be allocated to the National Galleries of Scotland.
The acceptance of this important painting could have settled up
to £14 million of tax. As the actual liability was only £2.4
million the balance of the price was met by a combination of a
major grant of £7.6 million from the Heritage Lottery Fund,
£0.5 million from the National Arts Collection Fund and a
Special Grant of £2.5 million from the Scottish Executive.
The National Galleries of Scotland was itself able to raise £1.0
By way of unfortunate contrast, when another Titian,
reported to be valued at around £60 million was offered as
a private treaty sale to the National Gallery in 2004-05, the
proposal was turned down as no funds were available.
The Waverley Report, half a century ago, at
a time of far greater financial stringency, specifically predicted
the need for exceptional Treasury grants to support the acquisition
of exceptional items which were threatened with export from this
country. The Land Fund was the alternative. Since then the Land
Fund has been dissolved and the National Heritage Memorial Fund
created to act as the fund of last resort for the protection of
the UK's heritage. Its effectiveness has, however, been seriously
compromised by the inadequate level of funding that it has received
in the last few years. Even when in 2007-08 its grant from Government
is doubled to £10 million it will not be in a position to
assist in more than a handful of cases each year and at the highest
levels of the art market, a complete years grant of £10 million
is insufficient to provide the UK with the financial strength
to compete in a world market.
The NHMF needs to be adequately funded to ensure
that the UK can act effectively in a highly competitive world
market for important cultural objects. This would be restoring
to the NHMF the role that was originally envisaged when it was
established 25 years ago and which it was able to fulfill for
the first decade or so of its existence.
This would enable it to assist:
1. with the acquisition and retention in
the UK of objects which come onto the market where no tax incentives
lower the cost to UK public purchasers; and
2. in those situations, such as the hybrid
cases of AIL described above, where the tax incentives that already
exist need the additional support of cash grants to be effective.
If the Acceptance in Lieu scheme is to continue
to bring into public ownership major works of cultural importance,
as it has done in the last 60 years, it will need to be able to
call upon the support of grant making bodies in general and the
NHMF, in particular, if the value of the scheme is to be maintained.