In Canada, assets that we inherit are not normally subject to inheritance taxes. However, in the United Kingdom, individuals are required to pay such taxes, which may become a barrier to distributing assets pursuant to the deceased’s wishes. If an estate is worth more than three hundred and twenty-five thousand pounds, including any assets held in trust and gifts distributed during the last seven years of life, inheritance taxes in the amount of 40% of the value of the estate will be payable. If estate assets include a valuable piece of art or other item of historical significance, it may not be possible for the estate to afford the inheritance taxes payable in order to effect the distribution of the asset to beneficiaries.
This week, an annual report was produced with respect to an initiative by the Arts Council of England called Acceptance in Lieu. The agency accepts donations of artwork to the public, and, in exchange, the taxpayer is granted an inheritance tax credit in the full amount of the fair market value of the item. The taxpayer, whether the estate or a beneficiary, can avoid paying inheritance tax on the specific asset, and also receive assistance in the payment of further inheritance taxes.
This year’s contributions through the Acceptance in Lieu scheme include a drawing by Raphael, the earliest known manuscripts by Charles Darwin, notes and letters written by John Lennon, and various other paintings, sculptures, and documents. The total value of this year’s donations was nearly fifty million pounds, a 57% increase from the previous report.
The writings of John Lennon were the first items to ever fall under the Cultural Gifts Scheme. This arrangement is now available with respect to assets that are distributed during one’s lifetime to effect a reduction in tax, calculated as a percentage of the value of the donated piece. The benefits were previously available only to offset inheritance tax after death.
The Acceptance in Lieu arrangement facilitates the acceptance from the deceased of other gifts that the estate or its beneficiaries could not otherwise have afforded to keep, while encouraging the donation of historically or culturally significant assets for public display.
Thank you for reading.