The American handed Leamas another cup of coffee and said, ‘Why don’t you go back and sleep? We can ring you if he shows up.’
The opening lines from John le Carre’s The Spy Who Came In From The Cold, his third novel and global bestseller that launched a stellar career as one of the UK’s best-loved spy fiction writers with a string of films and TV adaptations that continue to follow.
Like every good spy, John le Carre was the pen name for David John Moore Cornwell. He sadly passed away in 2020 leaving a valuable archive of more than 900 boxes of papers and manuscripts. His children have saved a £1.5m potential inheritance tax bill by having his archive classified as ‘cultural heritage’ and donating it to the nation via the acceptance-in-lieu scheme.
So how does the acceptance-in-lieu (AIL) scheme work and what kind of assets might qualify?
The AIL scheme is essentially a form of relief from inheritance tax (IHT) on objects, property or land that are considered ‘culturally significant’.
To qualify, the items must:
- Be objects or collections of national, historic or scientific interest;
- Land of outstanding scenic, historic or scientific interest; or
- Buildings that require preservation on the grounds of their historic or architectural interest.
Objects that qualify are varied and can include literary works, such as those created by John le Carre, paintings and drawings, sculpture, pottery, furniture, buildings and gardens. National interest is widely defined and can mean of local interest too. An item that might not be of interest to, for example, the V&A in London may well be of interest to a regional museum and still qualify.
A register and annual report from the Arts Council lists successful acceptance-in-lieu cases and a register of those assets donated to the country. It can be viewed here.
For an item to be considered, its owners or the executors of an estate must first gain a professional valuation of the asset and explain why it merits acceptance. A special AIL panel, managed and chaired by the Arts Council, will review the application and agree, or not, on its merit and value.
If an item is accepted, HMRC will apply an incentive, called a douceur, effectively increasing the tax credit claimed and the value of the item by 17%. For example, if an Estate does not opt to participate in the AIL scheme and instead sells the items into order to settle the Inheritance Tax liability, then the money in the beneficiaries’ hands would be as follows:
Taxable value £100,000
LESS
IHT @40% (£40,000)
Net value to Estate £60,000
However, if an item is accepted for the AIL scheme, then HMRC will refund 25% of the Inheritance Tax due on that item, meaning that the Estate benefits from a larger share of the item’s value than if it had been sold.
Taxable value £100,000
LESS
IHT@40% (£40,000)
PLUS
Douceur £10,000
Credit against IHT liability £70,000
It should be noted, however, that if the tax credit is greater than the Estate’s overall Inheritance Tax liability, HMRC will not refund the difference.
However, there are also other reasons for caution. The value of items will vary over time reflecting the tastes of museum buyers. Timing is therefore critical. Unlike the Conditional Exemption Scheme where donors can continue to benefit from the use of the asset, items accepted by the AIL scheme will fall out of the donor’s control and ownership forever. It should also be noted that where an estate or asset is contested, the AIL scheme will not be available.
The acceptance-in-lieu scheme can be an attractive option for the philanthropic-minded individual and with assets that might potentially qualify, but it is not a decision that should be taken lightly. Professional advice is essential.
Contact our Private Client Solicitors
If you are in need of advice or assistance on any of the legal issues mentioned in this article, please contact Olivia Meekin, Partner or any member of our experienced Private Client team on 020 7631 4141 or email privateclient@bishopandsewell.co.uk
The above is accurate as at 03 February 2025. The information above may be subject to change.
The content of this note should not be considered legal advice and each matter should be considered on a case-by-case basis.