Careful planning is needed to ensure that valuable assets, such as works of art and literature or land and buildings which are important to the UK’s national heritage, can be passed down to the next generation in the most tax-efficient manner.
Passing on cultural heritage assets, such as extensive and unique collections of art, literary works created by a relative, buildings and land comprising a landed estate, will involve some of the same considerations as gifts of any other property. While some legacies could be priceless, others may not currently have a significant value but may have the potential to increase in the future.
However, there are some additional factors to take into account that require specialist advice:
- how will the assets be managed and maintained going forward?
- are any special tax reliefs or exemptions available?
- can the gift result in a deferred tax charge under the special rules relating to heritage property and conditional exemption?
- do intellectual property rights such as copyright and/or artists’ resale rights need to be considered?
Obstacles to passing on cultural heritage assets include differences of opinion between family members, some of whom may wish to retain the assets for as long as possible and others who may wish to cash them in as soon as possible. The person passing on the assets may wish to structure the gift in a way that will ensure as far as possible that their wishes are followed.
Educating the next generation can be important in this respect, especially if the artist/author of the works is part of the family, to encourage the family members to take pride in the works and view them as family assets that should be preserved and protected.
The division of a legacy can be challenging. With most chattels this should be easy but where there is a single asset, which may be more valuable than everything else combined, then it is usually more difficult. Keeping track of the location of items is also essential.
In some cases the use of a trust, company or other holding structure may be appropriate. Family members could be involved in the running of these structures, as trustees or directors (although the tax position should be considered) or alternatively these posts could be filled by independents. In some cases the use of a trust, company or other holding structure may be appropriate
Taxation of works of art and chattels
Exemptions available to help reduce and, in some cases, altogether avoid inheritance tax (IHT) and capital gains tax (CGT) becoming payable include:
1. Giving away assets
Requires the person making the gift to survive the date of the gift by more than seven years; otherwise the gift will be set against their nil rate band.
2. Gift and leaseback
The donor will still need to survive the gift by seven years to achieve the full IHT saving. Specialist valuation and legal advice will be required in the negotiation of the rent and the terms of the lease.
3. Conditional exemption
If an individual owns works of art and chattels, land or buildings that are important to the UK’s national heritage then, provided the statutory criteria are met, IHT and CGT can be deferred if the recipient enters into written undertakings to keep the asset in the UK, look after and preserve it and to allow members of the public reasonable access to it.
"In some cases the use of a trust, company or other holding structure may be appropriate."