Whilst an uncommon and rarely used scheme, Acceptance in Lieu can offer those lucky enough to be dealing with cultural or historical assets an advantageous way of settling an inheritance tax liability on death.
When an estate finds itself liable to inheritance tax, assets often need to be sold to foot the bill. This can be particularly difficult if the deceased, or the beneficiaries, have particular wishes as to where the assets should end up or who they are sold to – something that cannot be controlled if sold by auction, for example. A unique option available to an executor who may be aware of such wishes is the Acceptance in Lieu Scheme; it can settle the tax, ensure the assets remain in the UK and can be enjoyed by the public. The Scheme also offers a financial benefit to make it a more attractive route than selling the assets privately.
It involves the estate’s Personal Representatives approaching HMRC and offering the transfer of an asset to settle the estate’s inheritance tax bill. The asset acts as a ‘credit’ and can be used to settle the estate’s overall tax liability. For offers of land and buildings, 10% of the potential tax liability of that asset is added to the tax settlement figure. For offers of art and other objects, 25% is added. Put simply, more tax could be settled using the Scheme compared to selling the asset privately and simply paying the tax. Once accepted, the asset is allocated to public institutions, museums or charities for the public to enjoy.
In order for the offer to be accepted, HMRC does require the asset to be ‘pre-eminent’ and in an acceptable condition – it must stand out and be of particular interest and importance. Thankfully, there are museums and valuers with good knowledge of the Scheme who can assist the Personal Representatives with the application. Recent accepted objects have included manuscripts, poems, woven carpet, photographs, figurines, musical instruments, books and crockery.
If you need further information or advice on this topic, or wish to know more about what tax reliefs, exemptions and schemes may be available to you, please do get in touch.