Art in a Cold Tax Climate

Yet another tax consultation paper has been published. As part of its big philanthropy drive, the government wants to encourage gifts to the nation of pre-eminent works of art. In return for their generosity donors will receive a reduction in their tax liability of 25% of the agreed value of the object donated.

So how will it work? If somebody wants to give a work of art to the nation, a panel of experts will first decide if it is of sufficient quality. If it is, they will agree a value. If the value is, say, £100,000, the donor will be able to take £25,000 off their tax bill for that year. Although the donor cannot stipulate in which museum the object ends up, they can make a request.

However, the government is only allowing tax relief of £20 million per tax year for this new scheme. Worse still, the £20 million cap will be shared with the existing "acceptance in lieu" scheme. This is a scheme where the government accepts pre-eminent works of art (and also heritage properties) in lieu of inheritance tax when the owner dies. The “acceptance in lieu” scheme was already capped at £20 million so it’s clear no new money has been earmarked for the new scheme under consultation. This means that if just a few valuable paintings are donated, nobody else will be able to benefit.

The government has acknowledged the potential problems with having to cover two different schemes with a single £20 million cap. But the figure is apparently not up for negotiation.

It is questionable whether a tax reduction of 25% of the value of the item will be enough of an incentive in any event. Nevertheless, there seems to be little point in the government consulting on whether the tax reduction should be higher than 25% of the value of the artwork. If the tax reduction is increased, even fewer donors will be able to benefit as the £20 million cap will be used up even more quickly.

The consultation paper discusses different approaches to the problems of the £20 million cap. These focus on capping the tax reduction per object and/or per donor. This will surely mean that only lower-value and potentially less interesting items are given to the nation.

Is the government trying its best to encourage heritage donations in a cash-strapped climate? Or is this just another attempt to pay lip-service to philanthropic policy making? Either way we want to ensure the government gets it right which is why Mishcon de Reya will be responding to the consultation paper. If you think you may use the new scheme and you have any comments to make, we would be happy to include them in our submission.

For more information please contact Andrew Goldstone +44 207 440 7205 or by e-mail, or Karen Sanig +44 207 440 7036 or by e-mail