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Lifetime Giving: Gifting in the Arts (CGS v AIL)

Philanthropic giving and Acceptance in Lieu scheme (AIL) and the Cultural Gifts Scheme (CGS) are explained in our latest Lifetime Giving article.

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The Arts Council England saw a record-breaking year in 2020 with the value of cultural objects and art entering public ownership equating to an impressive £64.5 million with £40 million of tax liabilities being settled in return.

Philanthropic giving of this nature is typically facilitated by the Acceptance in Lieu scheme (AIL) and the Cultural Gifts Scheme (CGS), both of which were introduced to encourage giving in the arts and cultural sectors to museums and other institutions for the nation to enjoy.

The Arts Council England advises HM Revenue & Customs as to which items qualify as pre-eminent for these purposes, with the emphasis on items showing a significant association to British history, national life or a particular historic setting, objects of artistic or art-historical interest and items of academic value.  Typical items may include archive collections, paintings, prints and sculptures.

AIL – Inheritance Tax (IHT)

In exchange for a qualifying gift under the AIL scheme, the HM Revenue & Customs agree to forego all or part of an estate’s IHT liability.  Whilst this scheme can only be utilised by the executors of an estate following the death of the owner of these qualifying items, it can be very generous and beneficial to the deceased’s heirs.

Once a value for the qualifying object(s) has been agreed and the potential net value after the deduction of IHT has been quantified, the AIL scheme offers an additional refund of IHT, known as the ‘douceur’ or ‘sweetner’, equal to 25% (10% for land and buildings) of the IHT that would have otherwise been paid.  With the benefit of the douceur, this effectively results in items being worth more in real terms if offered in lieu of IHT than sold on the open market.

CGS – Income (IT) and Capital Gains Tax (CGT)

In contrast, the CGS allows an individual to gift qualifying objects during their lifetime and claim a tax reduction equal to 30 percent of its value against their IT or CGT liabilities (or a combination of the two).  To fully utilise this tax saving incentive, the tax reduction can be spread over up to five tax years beginning with the tax year in which the offer is registered by the Arts Council England.

If you are fortunate enough to own objects of pre-eminent significance and you are considering giving them to the nation, there are potentially sizable tax benefits and it is worthwhile analysing the best case scenario for your personal tax and financial circumstances.

This article is part of a Lifetime Giving series. Read our latest article on how you can support your children in buying their first home.

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