Inheritance tax and the acceptance in lieu scheme

A 500-year-old miniature Italian Renaissance bronze was recently donated to the Fitzwilliam Museum in Cambridge under the acceptance in lieu scheme – saving the family £10.5 million in inheritance tax. This unique donation is an excellent reminder of HMRC’s acceptance in lieu scheme and how beneficial it can be in inheritance tax mitigation.

What is inheritance tax?

Inheritance tax (IHT) must be paid when a person’s estate exceeds their available nil rate band (usually £325,000). IHT is usually charged on death, but it can also be triggered during a person’s lifetime if they make gifts exceeding £325,000 to a company or into trust. Other gifts made during a person’s lifetime can also become chargeable to IHT if they are of sufficient value and are made within 7 years before death (known as potentially exempt transfers). The rate of IHT depends on whether it applies on a lifetime transfer (usually 20%) or on death (40%).

What is acceptance in lieu?

The acceptance in lieu scheme (AIL) is a form of IHT relief which allows culturally significant items to be donated to the nation in lieu of IHT. The main categories of asset which fall into the scheme include:

  • Objects of pre-eminent importance on the grounds of their national, scientific, historic or artistic interest
  • Objects associated with an important historic building in public ownership or belonging to certain charities
  • Land or buildings which are important to the national heritage

As demonstrated by the recent donation to the Fitzwilliam Museum, it can be a useful way of legitimately avoiding a hefty tax bill. 

One of the main aims of the scheme is to encourage items of cultural heritage and national importance to be donated for public enjoyment rather than remaining in private collections. As a result, if an asset is accepted under the scheme, the benefits from an IHT-saving perspective are very attractive. The tax incentive for the taxpayer is that the offeror of an item will benefit from a larger share of its value than if it were to be sold and the proceeds retained or donated to charity at a later date. An item accepted into the scheme will cause 25% of the tax that would have been payable on that item to be added back into the estate of the individual (as well as the tax saving on the value of the donated item).

If you believe you have an asset that might be a suitable candidate for the AIL scheme, get in touch with a member of the team who can advise on the details.

What other forms of tax relief are available?

The good news for those individuals who are not fortunate enough to own a national treasure, is that the AIL scheme is not the only route to enjoy some inheritance tax relief. There are a wide range of tax reliefs available, including but not limited to, reliefs linked to the family home, business and agricultural assets and certain types of investment. Individuals can also plan ahead by making strategic gifts during their lifetimes so as to mitigate the IHT tax bill on death.

Whether or not you have a priceless treasure tucked away, ongoing estate planning is key to keeping your personal affairs in order and up to date. It’s never too soon to get started…!

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Every piece of content we create is correct on the date it’s published but please don’t rely on it as legal advice. If you’d like to speak to us about your own legal requirements, please contact one of our expert lawyers.

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