Good news for national heritage property in today’s budget announcement

Today’s 2014 budget announcement included some good news for the UK’s national heritage: the combined annual budget for the Cultural Gifts Scheme (CGS) and the Acceptance in Lieu scheme (AIL) is to be increased from £30 million to £40 million.

Head of a Peasant Woman, Vincent Van Gogh c. 1884.
Credit: The National Gallery. Donated under the CGS scheme in 2013

Under the well-established AIL scheme, a person who is liable for inheritance tax can offer pay that tax liability by means of giving “national heritage property” (broadly, art works and other objects which are deemed to be pre-eminent for their national, scientific, historic or artistic interest) in full or part payment of tax, instead of paying cash.

The newer CGS complements the AIL scheme by allowing UK taxpayers to make lifetime gifts of important works of art to the nation in return for reductions in their tax liabilities.

The two schemes currently share a budget of £30 million so that, in any given tax year, the reduction in tax effected under both schemes cannot exceed £30 million. If an artwork for was offered under either scheme whose value would cause the annual limit to be exceeded, it could not be accepted. That budget was raised from £20 million for the AIL scheme alone to £30 million when the CGS was launched, following criticism that the CGS would eat into the AIL scheme’s budget.

Today’s increase means that the potential amount of tax allocated to increasing the UK’s national heritage collection in public hands has doubled since the days since before the CGS was introduced.

Recent donations under the CGS include an early Van Gogh entitled Head of a Peasant Woman (reported on Art and Artifice here), now on display in the National Gallery. 

Responses published: Gifts of pre-eminent objects and works of art to the nation

Last week, the government published the responses to its consultation on 'Gifts of pre-eminent objects and works of art to the nation' (written about in Art and Artifice here). The consultation, published in June 2011, outlined a new scheme aimed at encouraging lifetime gifts of cultural objects to the nation by rewarding the donors with tax breaks based on a percentage of the donated work's value.

Over 50 museums, archives, law firms and other bodies responded to the consultation. Their main concerns centred on a few key issues, including whether donors would be able to specify where their donated objects were displayed, the amount of the scheme's budget, and the amount of tax relief given to donors.

Under the scheme as originally proposed, donors could express a preference as to where their gift went, but their wishes would not be binding - the gift might end up elsewhere. Respondents pointed out that this could undermine links between potential donors and museums or galleries, since donors often want to give items to specific institutions with which they have built up a relationship. Despite these concerns the government has retained this aspect of the scheme and donors will only be able to suggest who should receive their cultural objects. However if in practice donors' wishes tend to be followed, this may not cause as many difficulties as is feared.

Many respondents also felt that the suggested tax relief of 25% of the donated item's value was too low and would inhibit take up of the scheme. Some pointed out that the rate compared unfavourably with similar schemes in other countries, and also that donors might find it more tax advantageous to sell art works and donate the proceeds using the Gift Aid scheme. In response, relief is now set to be increased to 30% for individual donors (and 20% for company donors).

Respondents were also concerned that the new scheme was to share the £20m budget of the existing Acceptance in Lieu (AIL) scheme. No new funds were to be allocated. Just a few high-value gifts might therefore wipe out the whole budget. It is now intended that, although the two schemes are still to share budgets, their joint allocation will increase to £30m.

And one other welcome change has sneaked in - the scheme's unwieldy title appears to have been mercifully shortened to the 'Cultural Gifts Scheme' or CGS.

Read the full consultation response summary from HM Treasury here, and the Department for Culture, Media and Sport's guidance to the new scheme here.