The art of estate planning

Very few people, if any, enjoy paying tax – and inheritance tax is famously unpopular. One arrangement which can leave everybody happier involves paying your tax bill with special “things”, i.e. works of art, or anything that is exceptional enough to be accepted by the government in lieu of folding money. Many owners of great houses and their long-held collections take advantage of this arrangement, but the fact that others can also benefit from it is not as well-publicised as it should be. Here we give a brief overview of how those with special assets, or executors dealing with estates that include them, can benefit from the tax incentives available.

What are national heritage assets?

As this is an article written by lawyers, it’s inevitable that we begin by defining our terms, the key one being a “national heritage asset”. That can include a picture, land, buildings, a book or manuscript, work of art or scientific object (or a collection), or anything else that is considered pre-eminent for its national, scientific, historic or artistic interest. An asset is pre-eminent if it falls under any of the following:

  1. It has an “especially” close association with our history and national life
  2. It is of special artistic or art-historical interest
  3. It is of special importance for the study of a particular form of art, learning or history
  4. It has an especially close association with a particular historical setting

A national heritage asset can be as large as a stately home and its surrounding park, or as small as a letter. We will now explain the tax incentives available to those fortunate enough to own what is, or could qualify as, a national heritage asset.

Acceptance in lieu

This scheme allows taxpayers (typically executors or trustees) to transfer national heritage assets to museums, galleries or other public institutions in payment of inheritance tax. 


Byzantine bowl on sixteenth-century gold stand, acquired from the estate of Edmund de Rothschild under the Acceptance in Lieu scheme.

To encourage people to take advantage of the scheme (instead of selling assets and paying the tax with the proceeds) the government gives taxpayers a financial inducement, called a “douceur.” The douceur is 25% of the tax payable (or 10% in the case of land). It works as follows:

Mr Smith dies owning a David Hockney painting worth £1m, which therefore attracts £400,000 of inheritance tax. The late Mr Smith was asset rich but cash poor, meaning his executors will struggle to pay the tax on his estate unless they sell the Hockney. If they sell it on the open market then, after paying the £400,000 tax on the painting itself, they will be left with £600,000. But if the painting were accepted by the Arts Council in lieu of tax, the douceur means that the executors would have a tax credit of £700,000 to set against the inheritance tax on Mr Smith’s estate. So, in short, by making use of the acceptance in lieu scheme, Mr Smith’s executors would secure an extra £100,000 for the Smith family.

Offers in lieu of inheritance tax must be made within two years of the relevant taxable event (typically a death). So the first step is, with the help of relevant experts, to identify a suitable asset (or more than one), to determine its value, and to make an application to Arts Council England. The panel at the Arts Council decides if it agrees that the asset is indeed pre-eminent, and whether the valuation that has been presented as part of the application is accurate. The Arts Council is independent of HMRC, ensuring fairness between the taxpayer and HMRC. Following the panel's recommendation, the final decision is made by the Secretary of State for Digital, Culture, Media and Sport. If accepted, the asset is allocated to a public institution.

2019-20 was a record year for acceptances in lieu – £64.5m of assets, including an extraordinary Gauguin manuscript never seen before by the public, and a Manet portrait, with recipient institutions ranging from the Bowes Museum to the National Gallery. 

Last year was a record for acceptances in lieu and cultural gifts

Value of objects accepted/gifted, including cultural gifts, year to 31 March


Source: Arts Council, Cultural Gifts Scheme and Acceptance in Lieu Report 2020

Private treaty sale

A private treaty sale is similar to an acceptance in lieu, except that the asset is sold to a qualifying public institution that pays the taxpayer an amount calculated on the same basis. The price is negotiated between the taxpayer and the institution. In the case of Mr Smith, this means the executors would receive cash proceeds of £700,000.

This approach is useful when the tax credit deriving from an acceptance in lieu would exceed the total tax bill, because you do not get “change” from an offer in lieu. A private treaty sale ensures that any excess remains with the taxpayer as cash proceeds.

Conditional exemption

If inheritance tax becomes due on, for instance, a collection of paintings, the owners can defer that tax indefinitely in return for agreeing with HMRC that they will keep the collection in the UK, preserve it properly, and allow the public access to it. That is very often the reason that a grand house is open to the public: at some point in the family’s past there will have been a taxable event, and rather than paying that tax at the time, the house or its collection (or both) were put on public display, and have remained so.

What is “reasonable public access” in this context has to be agreed with HMRC, and will depend on the type of asset. It could involve lending an object to a museum, gallery or other public institution.

As a general guide, for smaller buildings HMRC will require public access to the interior for a day a week, in addition to public holidays in the spring and summer. For larger buildings that are able to accommodate a large number of visitors, anything up to 156 days’ internal access might be deemed appropriate. In many cases, one can arrange for a collection or building to be accessible to members of the public only by appointment.

The exemption is “conditional” because a breach of the undertakings – a sale, typically – will mean the withdrawal of the exemption and the deferred tax charge falling due. If the asset passes on death, or as a gift, the new owner can renew the undertakings to avoid loss of the exemption.

Cultural Gifts Scheme

Introduced in 2013, this scheme encourages taxpayers (who are in philanthropic mood) to give national heritage objects to public institutions during their lifetimes.

The incentive is that a proportion of the value of the object donated to the nation is given as a tax credit. For instance, if you were to give away a £100,000 asset under the scheme, £30,000 could be deducted from your income tax or capital gains tax bill

2019-20 was a record year for the scheme, with public institutions acquiring various objects, from the relatively modest – a letter from Churchill used to settle £3,000 of tax – to the more substantial – a collection of drawings and prints that will settle just short of £600,000.

There is not time here to mention the charities that owners of collections can create, or the added complications that arise if a collection is still within the scope of estate duty (which was the precursor to inheritance tax).

For as long as it remains government policy to acquire special assets – and there are no indications that that policy is going to change – those fortunate enough to have them will have interesting and favourable options available.

This article is issued by Cazenove Capital which is part of the Schroders Group and a trading name of Schroder & Co. Limited, 1 London Wall Place, London EC2Y 5AU. Authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority. 

Nothing in this document should be deemed to constitute the provision of financial, investment or other professional advice in any way. Past performance is not a guide to future performance. The value of an investment and the income from it may go down as well as up and investors may not get back the amount originally invested.

This document may include forward-looking statements that are based upon our current opinions, expectations and projections. We undertake no obligation to update or revise any forward-looking statements. Actual results could differ materially from those anticipated in the forward-looking statements.

All data contained within this document is sourced from Cazenove Capital unless otherwise stated.