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Murray Beith Murray is a leading Scottish private client law firm.

For over 170 years we have specialised in meeting the legal, financial and administrative needs of individuals and families, family trusts, charities and private companies.

Acceptance in Lieu, another way to pay Inheritance Tax

andrewArts Council England recently announced that three artworks by Peter Lanyon, a figurehead of post-war British painting, were acquired for the nation as part of the acceptance in lieu scheme, nearly settling the £900,000 Inheritance Tax due on Lanyon’s widow’s estate. Acceptance in lieu is rarely used and may not necessarily spring to mind when planning to pay Inheritance Tax, however, as this case shows it may be worth considering.

The acceptance in lieu scheme provides an alternative way to pay Inheritance Tax. Instead of paying the tax, works of art and important heritage property can be transferred into public ownership in order to settle the liability in whole or in part. The scheme also encourages the preservation of objects of national importance for the benefit of the nation as public institutions can acquire the objects at no cost to themselves.

How does it work?

Offers in lieu are submitted to HMRC, assessed by the Acceptance in Lieu Panel (AILP) of the Arts Council before being approved by Secretary of State for Culture, Media and Sport (or, in Scotland, the Cabinet Secretary for Culture, Tourism and External Affairs). The AILP comprises independent experts who seek advice from museum or galley curators, scholars, or members of the art trade.

What kinds of property can be offered?

Objects offered in lieu of Inheritance Tax must be pre-eminent and in acceptable condition. Pre-eminence is determined by national, scientific, historic or artistic interest. An object can also be associated with an important historic building in public ownership.

It is possible to offer land or buildings which are important to the national heritage, however, such offers are very rare and are subject to different rules.

Where will the object go?

When submitting an offer in lieu, the offeror can state conditions or wishes in respect of where the object is to be allocated. If an offer is unconditional, institutions are invited to submit applications for the object. In Scotland, it is the Cabinet Secretary for Culture, Tourism and External Affairs who is responsible for allocating the object offered in lieu with the aim of making it accessible to as many members of the public as possible.

Objects which are accepted for acceptance in lieu due to their ties to a historic house in private ownership can remain in situ provided that the conditions of security and public access are met. Any such arrangement must be arranged by the offeror and agreed in principle with a public museum prior to the offer being submitted to HMRC. This demonstrates both the flexibility and complexity of the scheme and highlights the need for Executors to seek specialist legal advice.

Why should I submit an offer in lieu?

The scheme not only provides a way to settle Inheritance Tax without requiring estate assets be sold but reduces the amount of tax due. The offered object is not considered when calculating the taxable estate and interest due on the amount of tax stops accruing when HMRC registers the offer. Perhaps most attractively, the way in which HMRC calculates the credit generated by the offered object results in it being worth around 17% more when offered in lieu of tax rather than being sold on the open market at the same price.

Summary

Acceptance in lieu can be of immense benefit when arranging to settle Inheritance Tax, particularly in estates with high tax liabilities. Acceptance in lieu can also provide a tax-saving solution in situations where the offered object holds no sentimental value and the beneficiaries are reluctant to assume responsibility for its security, insurance, and maintenance.

How we can help

At Murray Beith Murray we are experienced in submitting offers in lieu and guiding our clients through this complex and lengthy process.  If this article has raised any questions or you would like to speak to one of our specialist lawyers please get in touch using our Contact Form or call us on 0131 225 1200 .

Our personal, attentive service coupled with sage, astute and commercially-minded guidance, allow us to build long-term, ongoing relationships with our clients, helping them to protect assets throughout generations. We clearly outline the implications from initial contact, helping to dispel the mystery behind the law and legal process. Our highly personal service reflects our culture, which is centred on integrity and trust, and the expert guidance we provide has been designed to be an investment, not an expense.

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