The Cultural Gift Scheme: Three Years On
Earlier this year, a group of specialist advisers gathered at Bonhams to consider the opportunities available for UK tax payers to gift their pre-eminent works of art to the state.
The ‘Cultural Gifts Scheme’ offers tax relief at 30% of the valuation of the item to the donor, who can offset this against their capital gains tax (CGT) or income tax for the year in which the gift is made. Alternatively, the relief can be spread over a maximum of 5 years. However, any outstanding tax relief is lost if the donor dies during the period of benefit from the relief. Scheme gifts are also exempt from CGT and inheritance tax (IHT). Recent gifts have included handwritten Beatles’ lyrics by John Lennon, Van Goghs and a Geoffrey Ford political poster.
It is important to distinguish the Scheme from the Acceptance in Lieu (AIL) scheme. AIL is only enacted after death and is really a means of paying IHT in kind while the Nation also benefits i.e. it is not a gift; the Scheme on the other hand involves lifetime giving.
So far, only seven donations under the Scheme have been successful. One of those gifts, a painting entitled, ‘The Dinner Party’ by Liverpool artist Sam Walsh, was made by John Entwistle, a former solicitor from Liverpool. Mr Entwistle shared his experience and thoughts on the Scheme, highlighting some of its benefits as well as some of the current disadvantages, which he believed may affect current and future opportunities for gifts. One key element of the Scheme comprises the ability to request a location for the gift. Having previously loaned the painting to the Walker Art Gallery and conscious of its cultural significance to Liverpool, Mr Entwistle valued the opportunity to select the Gallery as its destination. Although a request is not guaranteed to be honoured, Edward Harley, Chair of the Acceptance in Lieu Panel of Arts Council England, confirmed that, where possible, requests were granted and, to date, all wishes had been realised.
It may not be widely known that the Scheme is open to corporate entities as well as individuals. Companies can, however, only offset 20% of the value of the cultural gift against corporation tax.
The pre-eminence yardstick turned out to be broader in scope than many realised. Mike Neill, Tax & Cultural Heritage at Bonhams, outlined the 4 categories under which pre-eminence was judged and drew attention to the fact the second and third categories: whether an object was of special artistic or art historical interest or an object was of special importance for the study of some particular form of art, learning or history, were the categories most commonly cited by ACE. These categories covered the acceptance of a 17th Century Italian pen and ink drawing by Passarotti as well as a collection of 20th Century Studio Pottery.
Simon Weil, Partner at London law firm Bircham Dyson Bell, raised eyebrows by suggesting that a real step-change for the charity sector could only be achieved in the context of chattels gifts by lowering the threshold to the less stringent museum quality test and allowing income tax reliefs for all charitable gifts of chattels meeting the museum quality test at 100% of value, equivalent to the current reliefs for gifts of quoted securities and land to charities.
Questions from the audience concentrated on whether 30% of the value of a work was enough of an inducement – John Entwistle emphasised that the motivation had to be philanthropic and the subsequent value of the tax break was secondary. It was generally agreed that the Scheme was a good start - 10 years on from Sir Nicholas Goodison proposing the idea, but it needed to be more widely publicised. Some of the responsibility for promoting the Scheme falls to solicitors and wealth advisers, together with those working within museums, galleries and auction houses.
The event was co-produced and hosted by Bonhams, Bircham Dyson Bell and Philanthropy Impact
The Scheme is administered by Art Council England, for more information please contact Catherine Higgs: email@example.com