As part of Government’s drive to encourage philanthropy, draft legislation on a scheme to allow individuals and companies to settle tax liabilities by making gifts of pre-eminent objects and works of art to the nation has been published. 

Baker Tilly analysis

Getting a tax credit of 30% of the agreed value of the object, to use over 5 years (20% in a single year for companies) with no tax to pay on the gift seems like a good deal. However, having to allocate the credit to tax years up front with no option to change this does reduce the attraction unless you have very predictable tax liabilities. A fixed life tax credit allocated against future tax liabilities on either a first in first out basis or as the taxpayer directs would be far more attractive.

In detail

The scheme will operate in parallel with the existing acceptance in lieu scheme and will share many of its features; including what constitutes a pre-eminent object and a common funding pool. In a move to head off some criticism that funding would be a serious bar to success the funding pool is to be increased by 50% to £30 million.

Individuals will be able to allocate the tax credit against income tax and capital gains tax in the tax year in which their offer of the object is registered and the four following years. Companies will only be able to use the tax credit against corporation tax liabilities for the accounting period in which their offer is registered.

Objects will be allocated to museums, galleries etc. by the Secretary of State or other scheme administrators and while donors will be able to express a preference for where the object is placed, this will not be binding.

Although the legislation will be included in next year’s Finance Bill it will not come into force until a date to be announced following Royal Assent. April 2013 would seem to be the earliest commencement date.