Shifting traditions: acceptance in lieu and the great wealth transfer

Over the next two decades, USD 83 trillion is set to pass between baby boomers and their heirs in what has been coined ‘the great wealth transfer’. As significant collections and cultural assets pass between generations, many families are reassessing how best to plan their succession, particularly where the next generation has different financial priorities and collecting interests.

Against this backdrop, many private collectors, families and estates are increasingly exploring alternative approaches to wealth and estate planning, including the use of acceptance in lieu (AIL).

AIL is a scheme in which ‘pre-eminent’ objects of cultural, national, scientific, artistic or historical significance are offered to the nation in return for offsetting a proportion of the offeror’s inheritance tax (IHT). The scheme is designed to prevent estates from having to sell culturally significant heritage assets to private buyers to meet IHT obligations, while ensuring that such objects are preserved for public benefit through display and stewardship by museums, galleries and other cultural institutions.

According to Michael Clarke, the chair of the Acceptance in Lieu Panel at Arts Council England, 2025 saw a significant rise in the number of AIL donations since 2020. The past year alone has seen £59.7 million worth of objects allocated to national institutions, including a Regency mahogany ‘whatnot’ standing desk used by Sir Winston Churchill and Edgar Degas’ ‘Danseuses en rose’.

AIL can offer significant financial incentives over an open market sale where IHT has previously been applied to the object at a rate of 40%. Under this scheme, qualifying objects benefit from an additional tax incentive known as the ‘douceur’. The douceur is calculated at 25% of the IHT due, thereby enhancing the tax credit available to the estate. By way of example, if an object is worth £100,000, the inheritance tax attributable to that object would ordinarily be £40,000. The douceur would amount to £10,000 (being 25% of £40,000), resulting in a tax settlement value of £70,000. The object is therefore worth more to the estate through an accepted AIL offer than it would be if sold on the open market and the inheritance tax paid in the ordinary way.

How does AIL work in practice?

An applicant must make an application to the HMRC Heritage Team and include the relevant documents within their submission, including but not limited to:

• a description of the object with high resolution images;
• an explanation of why the object is considered pre-eminent;
• a condition report and valuation report; and
• evidence of legal title to the object and details of its ownership between 1933-1945.

Whilst there is no definitive list of what constitutes ‘pre-eminent’ for the purpose of AIL, there are some clear indicators, such as whether the object is of central importance to national, scientific, historic or artistic interest. This is a particularly high threshold to satisfy, requiring the item to be of exceptional importance rather than merely notable or significant. Common indicators of pre-eminent objects can include:

• whether the object has a close association with national life and history;
• whether the object is of importance for the study of some aspect of art, learning or history; or
• whether it has a close association with a particular historic setting or place.

The object will then be appraised by a panel of expert advisors who will make a recommendation to the Secretary of State for Culture, Media and Sport on whether or not the item is pre-eminent and what its fair value is. The remit for the type of cultural property which can be accepted is broad and includes any picture, print, book, manuscript, work of art, scientific object (including collections of such items), archives, medals, furniture and land or buildings which are considered important to national heritage.

Note that if an object has been kept in a significant building and it is deemed desirable for it to remain associated with the building, then the offeror may still receive the benefit of AIL, but the object will remain in situ, providing there is sufficient public access to the object and the necessary insurance arrangements are made. It is strongly advised that a carefully drafted agreement between the offeror and offeree is put in place to address such provisions. The Howard family of Castle Howard, North Yorkshire have used this scheme to settle IHT liability and in return the objects have remained in situ at Castle Howard, which is open to the public seven days a week.

Finally, an offer is made either with or without a recipient and it is through HMRC that the tax credit is applied. Recipients of pre-eminent objects and artefacts will be cultural institutions such as museums, art galleries or libraries whose purpose is to provide and preserve public collections of scientific, historic or artistic interest.

Penningtons Manches Cooper’s dedicated art, cultural property and luxury law group brings together specialists across the firm, including practitioners in our private client and tax team, who can provide assistance with matters relating to AIL. Please do get in contact with our team should you have any queries and we will be happy to help.