Under the current Acceptance in Lieu scheme, taxpayers can offer to transfer objects, land and buildings of cultural or historical importance into public ownership in full or part payment of their liability to inheritance tax. The scheme has its origins in the early twentieth century when the 1910 Finance Act first allowed the acceptance of objects by the nation in settlement of what was then known as Estate Duty. Over 100 years later, the scheme is still thriving and in recent years c.30 taxpayers per annum have used the scheme, resulting in annual tax settlements of approximately £10,000,000.

Notable examples of pre-eminent works transferred include one of Sir John Vanbrugh's baroque masterpieces, Seaton Delaval, and much of its contents in 2009, John Constable's 'Stratford Mill', a Rubens illustration of the Roman goddess, Venus, in 2011 and recently a 2000 year old iron-age fire guard that was discovered in a peat bog in 1892.

After much campaigning by galleries and museums, HMRC and the Department for Culture, Media and Sport launched a joint consultation in June 2011 on proposals to encourage taxpayers to donate pre-eminent objects and works of art to the nation during their lifetime in return for a tax reduction. HMRC subsequently published draft legislation on 6 December 2011 for insertion in the Finance Bill 2012.

The proposed Cultural Gifts Scheme is designed to operate alongside the existing Acceptance in Lieu scheme and will share a £30,000,000 annual limit (previously £20,000,000 for the Acceptance in Lieu scheme alone). The scheme is open to individuals and corporate bodies but excludes trustees and personal representatives and will not apply to gifts of land or buildings. For individual taxpayers, a flat rate tax reduction of 30% of the donated object's fair market value will apply. The tax reduction can be spread across the year of donation and the subsequent four years in satisfaction of the individual's income and capital gains tax liabilities. However, the individual must agree the allocation of the tax reduction for each tax year in advance and once agreed it cannot be changed (thereby running the risk that any unused part of the reduction will be lost).

Corporate donors will benefit from a corporation tax deduction equivalent in value to 20% of the agreed value of the donated object but the reduction may only be applied in the accounting period in which the donation is made.

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