Clause 96 - Gifts of real property to charity

Part of Finance Bill – in a Public Bill Committee at 3:00 pm on 13th June 2002.

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Photo of Mr Howard Flight Mr Howard Flight Conservative, Arundel and South Downs 3:00 pm, 13th June 2002

The Conservative party greatly welcomed the introduction of tax relief on gifts of listed securities. I believe that the measure was based on the success of the experience in the United States, and we argued that if Britain was following that, there was a powerful logic for including property and art treasures. Therefore, we are pleased that the Government have now added property. If they do not accept our arguments for including art treasures this year, we look forward to a clause in next year's Finance Bill that adds art treasures and unlisted securities.

Amendment No. 91 would allow a gift of a qualifying work of art by adding a new category to the existing list of qualifying assets in section 587B, in which land is now included under clause 96. Amendment No. 92 would give effect to that by defining a qualifying work of art by reference to existing criteria that apply to certain designated works of art and that are applied for the purposes of exemption from inheritance tax. The intention is not to limit the relief to the same items but to introduce a process whereby the Secretary of State for Culture, Media and Sport could designate individual works of art, or works of art as a class, qualifying works of art.

Art galleries and charitable organisations have widely welcomed the amendment. Alex Beard, a director of the Tate, has said that it would

''encourage lifetime donations of works of art to galleries and to national collections.''

I shall say more on that in a moment. James Evelyn of the Charities Tax Reform Group has rightly pointed out that other assets that do not fit into the broad categories of listed securities, property and works of art would also be incredibly valuable if they were

gifted under the scheme to charities; for example, computers, motor vehicles, intellectual property and, as mentioned earlier, unlisted securities.

Under existing rules, the owner of a valuable work of art who wishes to donate the asset to a charity cannot benefit from gift aid unless the asset is sold and the cash donated to a charity. That expensive and inefficient approach results in works of art not ending up in a national collection. The existence of a relief from inheritance tax through the assets in lieu of tax scheme creates a perverse incentive to retain works of art until death. In practice, few major works of art are donated during the owner's lifetime.

Extending tax relief to such gifts in kind would constitute a major step forward in helping public museums and galleries to expand their holdings. It would provide an additional impetus to encourage donations of valuable assets to other charities. In a rather circular business, at present deals are done over inheritance tax on works of art. There is a scramble to collect the money to purchase the work and keep it in the country. In one way or another, Government agencies put up most of the money. In the round, extending the measure to works of art would actually be modest in cost terms, because it would provide a simple, reasonably attractive mechanism for gifting works of art.

I anticipate that the Government do not want to do that yet, and that their principal objection to it will be based on the costs and risks to the Exchequer. They will argue that no ready market exists for many works of art, as it does for quoted shares or, less arguably, for land, and that both the donor and those receiving donations have an incentive to maximise the value and increase the tax relief available. The amendment addresses that objection. It would not extend relief to all works of art because that could give rise to difficulties of definition. It would adopt the provisions of the Inheritance Tax Act 1984, which allows the Treasury to designate the works of art that benefit. That allows negotiation of agreement in relation to works of art of national importance and provides reasonable protection to the Treasury against abuse. Parallel arrangements work extremely satisfactorily in the United States; there, equivalent relief for tax purposes relies on the evaluations by an expert panel of gifts of works of art.

The anticipated objections are therefore dealt with by case-study experience in the United States and by the amendment's provisions. We should like to know the Government's reasons for adding land but not biting the bullet and adding works of art. The Government may not accept our argument this year, but we think that it will be on the agenda next year.