In the Budget last year the Government proposed a number of initiatives to encourage charitable giving.
Much attention was paid to the proposed reduction in the Inheritance Tax rate where 10% of the deceased’s estate passes to charity, but there was also a significant proposal regarding lifetime gifts of cultural objects to the nation, offering donors a reduction in their Income Tax and Capital Gains Tax liabilities.
In December 2011 the Government published detailed proposals for this new tax relief which is expected to come into effect on 6 April 2012.
What is the relief?
For an individual, 30% of the value of the object donated can be deducted from his Income Tax or Capital Gains Tax liability for the current year or spread over the current and subsequent four years, giving a total of a five year period.
A company can deduct 20% of the value of the object donated against its Corporation Tax liability in its current accounting year – the relief cannot be spread.
- The gifts themselves will not be subject to Capital Gains Tax or Corporation Tax.
- If the object was previously conditionally exempt from Inheritance Tax the donation will cancel the previous Inheritance Tax liability. However if the object was previously conditionally exempt from Estate Duty (ie. on deaths before 1975), the donation will trigger an Estate Duty recapture charge.
- The procedure for the Scheme will follow that currently in existence for the Acceptance in Lieu Scheme.
- The object donated will be allocated to an appropriate institution which will be required to accept certain conditions as to maintaining and insuring the object and public display.
Which objects can qualify?
- The Scheme will apply to objects which are “pre-eminent” or “associated with an historic building”.
- To be “pre-eminent” the object needs to be “pre-eminent for its national, scientific, historic or artistic interest”.
- To be “associated with an historic building” the historic building must be owned by a prescribed public or charitable body such as the National Trust and the object must have been kept in that building.
- Assets that are jointly owned or held by trustees or personal representatives cannot qualify.
While it is disappointing that the tax relief cannot be carried back as well as forward and the terms of the deduction against Income Tax/Capital Gains Tax have to be agreed in advance if they are to be spread over a five year period, the Government has announced a welcome increase in the value of the Scheme from £20m to £30m, to cover both the Acceptance in Lieu and this new Cultural Gifts Scheme.
We are pleased to see this significant new relief against Income Tax and Capital Gains Tax for cultural objects. It is much less generous that gifts of cash or qualifying investments to charity and those holding pre-eminent or historically associated objects should continue to consider donations to charity or claiming Conditional Exemption on death. However the Government have said that they will keep the Scheme under review and so we hope to see extensions to the Cultural Gifts Scheme in the future.
For more information please contact Clare Colacicchi at email@example.com or on 01604 463317