ASSETS // Preserving Legacy Through Art: The Taxation of Heritage Assets
In the realm of wealth stewardship, there are few concepts as elegant as the Acceptance in Lieu (AIL) scheme — a little-known but powerful way to balance inheritance tax liabilities with cultural legacy. For those who hold or manage national heritage assets, AIL presents a unique opportunity: preserve something beautiful for the public good while also protecting your estate’s value. We spoke with Rebecca Bion of Forsters to find out how this works — and why it may be an inspired tool for those thinking about wealth, impact, and legacy through a more expansive lens.
What Is AIL?
Acceptance in lieu (“AIL”) enables taxpayers – usually executors or trustees – to give certain types of assets to qualifying public institutions (e.g. museums and art galleries) in payment of inheritance tax (“IHT”). AIL allows everyone to win - taxpayers can discharge their IHT liability without being required to sell and the Government secures valuable and culturally significant assets for the nation, and the public benefits through being able to access those items.
Who Benefits?
You (or your estate) avoid a forced sale and maximize value through a tax credit.
The Government acquires a piece of national heritage without spending directly from public funds.
The Public gains access to remarkable works and artifacts they may otherwise never see.
As detailed in the Arts Council’s ‘Cultural Gifts Scheme & Acceptance in Lieu Annual Report’, in the 2023/24 tax year alone over £45 million of culturally significant assets were secured for the nation — including paintings by Bridget Riley and L.S. Lowry — all thanks to this remarkable scheme.
What Qualifies as a “National Heritage Asset”?
AIL is available where individuals own what are known as a ‘national heritage assets’. National heritage assets are not limited to Old Masters or great houses. They can include land, buildings, a book or manuscript, or scientific object (or a collection), or anything else considered pre-eminent for its national, scientific, historic or artistic interest. In 2023/24 paintings, archives, photos, ceramics and letters were all accepted.
An asset is considered ‘pre-eminent’ if:
1. It has an ‘especially’ close association with our history and national life;
2. It is of especial artistic or art-historical interest;
3. It is of especial importance for the study of a particular form of art, learning or history; or
4. It has an especially close association with a particular historical setting.
The Financial Advantage: The “Douceur”
To encourage taxpayers to take advantage of AIL (instead of selling assets and paying IHT with the proceeds) the Government gives taxpayers a financial inducement, called a ‘douceur’, which is 25% of the tax payable (or 10% for land). Take for example, executors hold a ‘pre-eminent’ painting worth £1m. In that case, £400k of IHT (at 40%) is due on it. If the executors had chosen to sell the painting on the open market and use the proceeds to pay the IHT, they would have been left with £600k. However, under AIL, the executors secure an extra tax credit of £100k, meaning that they receive a total credit of £700k to set against the IHT on the rest of estate. Ultimately, the beneficiaries get an extra £100k.
How the Process Works
National heritage assets must be offered within two years of the relevant taxable event (typically a death). A suitable asset must be identified first, the value of the asset is then determined, and then an application is made to the Arts Council’s AIL panel (which comprises a number of specialists) who decide if the asset is preeminent and if they agree the value the taxpayer has given for it. 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.
Identify the asset
Value the asset.
Submit an AIL application to the Arts Council, which assesses its pre-eminence and fair market value.
Receive approval from the Secretary of State for Culture.
The item is allocated to a public institution, where it becomes accessible to the nation.
AIL is not the only relief available for national heritage assets:
• Private treaty sale: This is like an AIL, except the asset is sold to a public institution that then pays the taxpayer an amount calculated on the same basis. The price is negotiated between the taxpayer and institution. Using the example above, the executors would receive £700k of cash. This route is useful when the tax credit from an AIL would exceed the total IHT, because you do not get ‘change’ from an AIL. A private treaty sale ensures that any excess remains with the taxpayer as cash proceeds.
• Conditional exemption: Owners can defer IHT on national heritage assets indefinitely, provided they undertake with HMRC to keep the assets in the UK, preserve them, and allow ‘reasonable public access’. Grand homes are often open to the public because there has been a taxable event in the family’s past; rather than paying IHT then, items would have been put on public display.
What is ‘reasonable public access’ must be agreed with HMRC and will depend on the type of asset. It could involve lending an object to a museum or gallery or, if an asset remains in situ (or is not moveable) in a large building that can accommodate many visitors, anything up to 156 days’ access might be deemed appropriate. In short, access is fact specific.
The exemption is ‘conditional’ because a breach of the undertakings (usually a sale) results in withdrawal of the exemption and the deferred IHT falling due. If assets pass on death, or as a gift, new owners can renew the undertakings to avoid loss of the exemption.
• Cultural gifts scheme: Introduced in 2013 to encourage taxpayers to give national heritage assets to public institutions during their lifetimes. A proportion of the value of the asset donated to the nation is given as a tax credit, e.g. if you were to give away a £100k asset, £30k could be deducted from your income tax or capital gains tax bill across a maximum of five years.
The Acceptance in Lieu scheme represents a sophisticated and strategic approach to estate planning — one that allows individuals and families to meet their tax obligations while contributing meaningfully to the nation’s cultural heritage. By preserving significant assets for public benefit, AIL not only supports legacy planning but also reinforces a broader commitment to stewardship and impact. For those seeking to align their financial decisions with long-term values, it offers a compelling and dignified solution.
